<Page>


                    U.S. SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                   FORM 40-F


[   ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12 OF THE SECURITIES EXCHANGE
       ACT OF 1934
                                       OR

[ X ]  ANNUAL REPORT PURSUANT TO SECTION 13(a) OR 15(d) OF THE SECURITIES
       EXCHANGE ACT OF 1934


For the fiscal year ended  DECEMBER 31, 2003    Commission File Number  1-31690
                          -------------------                          ---------


                            TRANSCANADA CORPORATION
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                                     CANADA
                (JURISDICTION OF INCORPORATION OR ORGANIZATION)


                             4922, 4923, 4924, 5172
    (PRIMARY STANDARD INDUSTRIAL CLASSIFICATION CODE NUMBER (IF APPLICABLE))


                                 NOT APPLICABLE
            (I.R.S. EMPLOYER IDENTIFICATION NUMBER (IF APPLICABLE))


                     TRANSCANADA TOWER, 450 - 1 STREET S.W.
                       CALGARY, ALBERTA, CANADA, T2P 5H1
                                 (403) 920-2000
   (ADDRESS AND TELEPHONE NUMBER OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)


                  CT CORPORATION, SUITE 2610, 520 PIKE STREET
           SEATTLE, WASHINGTON, 98101; (206) 622-4511; 1-800-456-4511
 (NAME, ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE)
                   OF AGENT FOR SERVICE IN THE UNITED STATES)


           SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

TITLE OF EACH CLASS                    NAME OF EACH EXCHANGE ON WHICH REGISTERED
Common Shares (including Rights        New York Stock Exchange
under Shareholder Rights Plan)


                        Securities registered pursuant to
                         Section 12(g) of the Act: None
        Securities for which there is a reporting obligation pursuant to
                         Section 15(d) of the Act: None


For annual reports, indicate by check mark the information filed with this Form:

 [ X ] Annual Information Form        [ X ] Audited annual financial statements


Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the annual
report.

                AT DECEMBER 31, 2003, 483,200,386 COMMON SHARES
                          WERE ISSUED AND OUTSTANDING


Indicate by check mark whether the Registrant by filing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934
(the "Exchange Act"). If "Yes" is marked, indicate the file number assigned to
the Registrant in connection with such Rule.

                Yes                                No   X
                    -----                             -----


Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12
months (or such shorter period that the Registrant was required to file such
reports) and (2) has been subject to such filing requirements for the past 90
days.

                Yes   X                            No
                    -----                             -----


<Page>


     The documents (or portions thereof) forming part of this Form 40-F are
incorporated by reference into the following registration statements under the
Securities Act of 1933, as amended:

<Table>
<Caption>
                FORM        REGISTRATION NO.
               ------      ------------------
               <S>         <C>
                S-8          33-00958
                S-8          333-5916
                S-8          333-8470
                S-8          333-9130
                F-3          33-13564
                F-3          333-6132
</Table>

              CONSOLIDATED AUDITED ANNUAL FINANCIAL STATEMENTS AND
                       MANAGEMENT'S DISCUSSION & ANALYSIS

A.   AUDITED ANNUAL FINANCIAL STATEMENTS

     For consolidated audited financial statements, including the report of
independent chartered accountants with respect thereto, see pages 55 through
88 of the TransCanada Corporation ("TransCanada") 2003 Annual Report to
Shareholders included herein. See Note 18 of the Notes to Consolidated
Financial Statements on pages 84 through 88 of the TransCanada 2003 Annual
Report to Shareholders, reconciling the important differences between Canadian
and United States generally accepted accounting principles.

B.   MANAGEMENT'S DISCUSSION & ANALYSIS

     For management's discussion and analysis, see pages 8 through 52 of the
TransCanada 2003 Annual Report to Shareholders included herein under the heading
"Management's Discussion & Analysis".

     For the purposes of this Report, only pages 8 through 52 and 55 through 88
of the TransCanada 2003 Annual Report to Shareholders as referred to above shall
be deemed incorporated herein by reference and filed, and the balance of such
2003 Annual Report, except as otherwise specifically incorporated by reference
in the TransCanada Annual Information Form, shall be deemed not filed with the
Securities and Exchange Commission as part of this Report under the Exchange
Act.

                                   UNDERTAKING

     The Registrant undertakes to make available, in person or by telephone,
representatives to respond to inquiries made by the Commission staff, and to
furnish promptly, when requested to do so by the Commission staff, information
relating to: the securities registered pursuant to Form 40-F; the securities in
relation to which the obligation to file an Annual Report on Form 40-F arises;
or transactions in said securities.

                       DISCLOSURE CONTROLS AND PROCEDURES

     Pursuant to the Sarbanes-Oxley Act of 2002 as adopted by the U.S.
Securities and Exchange Commission, the Registrant's management evaluates the
effectiveness of the design and operation of the company's disclosure controls
and procedures (disclosure controls). This evaluation is done under the
supervision of, and with the participation of, the President and Chief Executive
Officer and the Chief Financial Officer.

     As of the end of the period covered by this Annual Report, the Registrant's
management evaluated the effectiveness of its disclosure controls. Based on that
evaluation, the President and Chief Executive Officer and the Chief Financial
Officer have concluded that the Registrant's disclosure controls are effective
in ensuring that material information relating to the Registrant is made known
to management on a timely basis, and is included in this Form 40-F.

     No change in the Registrant's internal control over financial reporting
occurred during the period covered by this annual report that has materially
affected, or is reasonably likely to materially affect, the Registrant's
internal control over financial reporting.

<Page>


                        AUDIT COMMITTEE FINANCIAL EXPERT

     The Registrant's board of directors has determined that it has at least one
audit committee financial expert serving on its audit committee. Mr. Harry G.
Schaefer has been determined to be such audit committee financial expert and is
independent, as that term is defined by the New York Stock Exchange's listing
standards applicable to the Registrant. The SEC has indicated that the
designation of Mr. Schaefer as an audit committee financial expert does not make
Mr. Schaefer an "expert" for any purpose, impose any duties, obligations or
liability on Mr. Schaefer that are greater than those imposed on members of the
audit committee and board of directors who do not carry this designation or
affect the duties, obligations or liability of any other member of the audit
committee.

                                 CODE OF ETHICS

     The Registrant has adopted codes of business ethics for its employees and
officers, its principal executive officer, principal financial officer and
controller and its directors. The Registrant's codes are available on its
website at www.transcanada.com. There has been no waiver of the codes granted
during the 2003 fiscal year.

                     PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The aggregate fees for professional services rendered by KPMG LLP for
the TransCanada group of companies for the 2003 and 2002 fiscal years are
shown in the table below:

<Table>
<Caption>
     --------------------------------------------------------------------
     Fees in millions of dollars                    2003            2002
     --------------------------------------------------------------------
     <S>                                          <C>             <C>
     Audit Fees                                   $ 1.80          $ 1.80
     --------------------------------------------------------------------
     Audit-Related Fees                             0.05            0.02
     --------------------------------------------------------------------
     Tax Fees                                       0.06            0.10
     --------------------------------------------------------------------
     All Other Fees                                 0.05               -
     --------------------------------------------------------------------
     Total                                        $ 1.96          $ 1.92
     --------------------------------------------------------------------
</Table>


     The nature of each category of fees is described below.

AUDIT FEES

     Audit fees were incurred for professional services rendered by the auditors
for the audit of the Registrant's annual financial statements or services
provided in connection with statutory and regulatory filings or engagements, the
review of interim consolidated financial statements and information contained in
various prospectuses and other offering documents.

AUDIT-RELATED FEES

     Audit-related fees were incurred for the audit of the financial statements
of the Registrant's various pension plans.

TAX FEES

     Tax fees were incurred for tax compliance and tax advice. These services
consisted of: tax compliance including the review of original and amended tax
returns, assistance with questions regarding tax audits, the preparation of
employee tax returns under the Registrant's expatriate tax services program and
assistance in completing routine tax schedules and calculations; and tax
services relating to common forms of domestic and international taxation (i.e.,
income tax, capital tax, Goods and Services Tax and Value Added Tax).

ALL OTHER FEES

     Fees disclosed in the table above under the item "all other fees" were
incurred for services other than the audit fees, audit-related fees and tax fees
described above. These services consisted of advice with regards to compliance
with the Sarbanes-Oxley Act of 2002.

PRE-APPROVAL POLICIES AND PROCEDURES

     TransCanada's Audit Committee has adopted a pre-approval policy with
respect to permitted non-audit services. Under the policy, the Audit
Committee has granted pre-approval for engagements of $25,000 CDN or less and
within management's annual pre-approved limit. For engagements of $25,000 CDN
or less which are not within management's annual pre-approved limit, and for
engagements between $25,000 CDN and $100,000 CDN, approval of the Audit
Committee Chairman is required and the Audit Committee is to be informed of
the engagement at the next scheduled Audit Committee meeting. In all cases,
regardless of dollar amount involved, where there is a potential for conflict
of interest for the external auditor to arise on an engagement, the Audit
Committee Chairman shall pre-approve the assignment.

     TransCanada has not approved any non-audit services on the basis of the
de-minimis exemptions. All non-audit services are pre-approved by the Audit
Committee in accordance with the pre-approval policy referenced herein.


<Page>


                         OFF-BALANCE SHEET ARRANGEMENTS

     The Registrant has no off-balance sheet arrangements, as defined in this
Form, other than the guarantees described in Notes 16 and 18 of the Notes to
the Consolidated Financial Statements. The disclosure relating to guarantees
in Notes 16 and 18 to the Consolidated Financial Statements is incorporated
herein by reference.

                  TABULAR DISCLOSURE OF CONTRACTUAL OBLIGATIONS

<Table>
<Caption>
                                                                                     LESS THAN       1-3         3-5       MORE THAN
CONTRACTUAL OBLIGATIONS                                                    TOTAL       1 YEAR       YEARS       YEARS       5 YEARS
------------------------------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>        <C>            <C>         <C>        <C>
Long-Term Debt Obligations                                                10,795          569       1,225       1,191         7,810
Capital (Finance) Lease Obligations
Operating Lease Obligations                                                  118           18          36          34            30
Purchase Obligations(1)                                                    6,586        1,036       1,349         889         3,312

Other Long-Term Liabilities Reflected on the Registrant's Balance
Sheet under the GAAP of the primary financial statements
                                                                       -------------------------------------------------------------
Total                                                                     17,499        1,623       2,610       2,114        11,152
                                                                       =============================================================
</Table>

(1)  The amounts in this table exclude expected funding contributions of
     approximately $80 million in 2004 to the Registrant's pension plans.

     For further information on purchase obligations see "Management's
Discussion and Analysis - Contractual Obligations - Purchase Obligations",
which is incorporated herein by reference.

                      IDENTIFICATION OF THE AUDIT COMMITTEE

     The Registrant has a separately-designated standing Audit Committee. The
members of the Audit Committee are:

         Chair:      H.G. Schaefer
         Members:    P. Gauthier
                     K.L. Hawkins
                     S.B. Jackson
                     J.R. Paul

                           FORWARD-LOOKING INFORMATION

     Documents and statements herein and documents herein incorporated by
reference, and other reports and filings made with the securities regulatory
authorities include forward-looking statements. All forward looking statements
are based on TransCanada's current beliefs as well as assumptions made by and
information currently available to TransCanada and relate to, among other
things, anticipated financial performance, business prospects, strategies,
regulatory developments, new services, market forces, commitments and
technological developments. By its nature, such forward-looking information
is subject to various risks and uncertainties, including those discussed
herein, which could cause TransCanada's actual results and experience to
differ materially from the anticipated results or other expectations
expressed. Readers are cautioned not to place undue reliance on this
forward-looking information, which is as of the date hereof, and TransCanada
undertakes no obligation to update publicly or revise any forward-looking
information, whether as a result of new information, future events or
otherwise.

<Page>


                                   SIGNATURES

     Pursuant to the requirements of the Exchange Act, the Registrant certifies
that it meets all of the requirements for filing on Form 40-F and has duly
caused this Annual Report to be signed on its behalf by the undersigned, thereto
duly authorized, in the City of Calgary, Province of Alberta, Canada.

                          TRANSCANADA CORPORATION


                          Per: /s/ Russell K. Girling
                               -------------------------------------------------
                               RUSSELL K. GIRLING, Executive Vice-President,
                               Corporate Development and Chief Financial Officer

                               Date: March 15, 2004


<Page>


DOCUMENTS FILED AS PART OF THIS REPORT

     1.   TransCanada Corporation Renewal Annual Information Form for the year
          ended December 31, 2003.

     2.   Management's Discussion and Analysis (included on pages 8 through 52
          of the TransCanada 2003 Annual Report to Shareholders).

     3.   2003 Consolidated Audited Financial Statements (included on pages 55
          through 88 of the TransCanada 2003 Annual Report to Shareholders).

     4.   U.S. GAAP reconciliation of the 2003 Consolidated Audited Financial
          Statements (included on pages 84 through 88 of the TransCanada 2003
          Annual Report to Shareholders).


EXHIBITS

     1.   Consent of KPMG LLP Chartered Accountants.

     2.   Certification of Chief Executive Officer pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.

     3.   Certification of Chief Financial Officer pursuant to Section 302 of
          the Sarbanes-Oxley Act of 2002.

     4.   Certification of Chief Executive Officer regarding Periodic Report
          containing Financial Statements.

     5.   Certification of Chief Financial Officer regarding Periodic Report
          containing Financial Statements.



<Page>
                                                                          [LOGO]

                            TRANSCANADA CORPORATION

                                    RENEWAL
                            ANNUAL INFORMATION FORM

                      FOR THE YEAR ENDED DECEMBER 31, 2003

                                                               FEBRUARY 24, 2004
<Page>
                               TABLE OF CONTENTS

<Table>
<Caption>
                                            PAGE
                                          --------
<S>                                       <C>
TABLE OF CONTENTS.......................         i
REFERENCE INFORMATION...................        ii
PRESENTATION OF INFORMATION.............        ii
FORWARD-LOOKING INFORMATION.............        ii
THE COMPANY.............................         1
  TransCanada Corporation...............         1
  Subsidiaries..........................         1
  Gas Transmission Business.............         2
  Power Business........................         2
GENERAL DEVELOPMENT OF THE BUSINESS.....         3
  Developments in Gas Transmission
    Business............................         3
  Developments in Power Business........         4
  Recent Developments...................         5
BUSINESS OF TRANSCANADA.................         6
  Gas Transmission......................         6
    Wholly-Owned Pipelines..............         7
    Other Gas Transmission..............        11
    Regulation of North American
      Pipelines.........................        13
    Competition in Gas Transmission.....        14
    Research and Development............        14
  Power.................................        14
    TransCanada Power, L.P..............        15
    Power Performance...................        16
    Regulation of Power.................        16
    Competition in Power................        17
  Other Interests.......................        17
    Cancarb Limited.....................        17
    TransCanada Turbines................        17
    TransCanada Calibrations............        17
  Discontinued Operations...............        17
    Gas Marketing and Trading...........        17
</Table>

<Table>
<Caption>
                                            PAGE
                                          --------
<S>                                       <C>
    International.......................        17
    Midstream...........................        18
HEALTH, SAFETY AND ENVIRONMENT..........        18
  Climate Change........................        19
PATENTS, LICENCES AND TRADEMARKS........        19
LEGAL PROCEEDINGS.......................        19
RISK FACTORS............................        19
    Gas Transmission....................        19
    Power...............................        20
    International.......................        20
    Corporate...........................        20
FINANCIAL INFORMATION...................        21
  Three Year Selected Consolidated
    Financial Information...............        21
  Dividends.............................        21
MARKET FOR SECURITIES...................        21
DIRECTORS AND OFFICERS..................        21
    Directors...........................        22
    Officers............................        24
CORPORATE GOVERNANCE....................        26
ADDITIONAL INFORMATION..................        27
SCHEDULE "A"............................        28
  Exchange Rate of the Canadian
    Dollar..............................        28
  Metric Conversion Table...............        28
SCHEDULE "B"............................        29
SCHEDULE "C"............................        37
SCHEDULE "D"............................        41
SCHEDULE "E"............................        43
SCHEDULE "F"............................        44
SCHEDULE "G"............................        50
SCHEDULE "H"............................        53
SCHEDULE "I"............................        55
</Table>

                                                      TRANSCANADA CORPORATION  i
<Page>
                             REFERENCE INFORMATION

For the reference information noted below, please refer to Schedule "A".

    - Exchange Rate of the Canadian Dollar

    - Metric Conversion Table

                          PRESENTATION OF INFORMATION

Unless otherwise noted, the information contained in this Renewal Annual
Information Form ("AIF") is given as at December 31, 2003 ("YEAR END").

This AIF has been prepared to reflect the presentation of the operations of
TransCanada Corporation ("TRANSCANADA") as they are presented in TransCanada's
2003 Audited Consolidated Financial Statements. TransCanada's Management's
Discussion and Analysis dated February 24, 2004 ("MD&A") can be found in
TransCanada's Annual Report to Shareholders for the year ended December 31, 2003
("ANNUAL REPORT") and is incorporated by reference into this AIF, together with
Notes 1, 16 and 17 of TransCanada's 2003 Audited Consolidated Financial
Statements which are also contained in the Annual Report.

Unless the context indicates otherwise, a reference in this AIF to "TransCanada"
includes the subsidiaries of TransCanada through which its various business
operations are conducted. In particular, "TransCanada" includes references to
TransCanada PipeLines Limited ("TCPL"). Where TransCanada is referred to with
respect to actions that occurred prior to its 2003 arrangement with TCPL which
is described below under the heading "The Company -- TransCanada Corporation",
these actions were taken by TCPL or its subsidiaries. The term "subsidiary",
when referred to in this AIF, means direct and indirect wholly-owned
subsidiaries of TransCanada.

Trends impacting TransCanada's gas transmission and power businesses are
discussed in the MD&A under the headings "Gas Transmission" (under the
subheadings "Opportunities", "Challenges" and "Canadian Regulatory Development")
and "Power" (under the subheadings "Opportunities" and "Challenges").

                          FORWARD-LOOKING INFORMATION

Documents incorporated by reference in this AIF and other reports and filings
made with the securities regulatory authorities include forward-looking
statements. All forward looking statements are based on TransCanada's current
beliefs as well as assumptions made by and information currently available to
TransCanada and relate to, among other things, anticipated financial
performance, business prospects, strategies, regulatory developments, new
services, market forces, commitments and technological developments. Much of
this information also appears in the MD&A. By its nature, such forward-looking
information is subject to various risks and uncertainties, including those
discussed in this AIF, which could cause TransCanada's actual results and
experience to differ materially from the anticipated results or other
expectations expressed. Readers are cautioned not to place undue reliance on
this forward-looking information, which is given as of the date it is expressed
in this AIF or otherwise, and TransCanada undertakes no obligation to update
publicly or revise any forward-looking information, whether as a result of new
information, future events or otherwise.

ii  TRANSCANADA CORPORATION
<Page>
                                  THE COMPANY

TRANSCANADA CORPORATION

TransCanada was incorporated pursuant to the provisions of the CANADA BUSINESS
CORPORATION ACT on February 25, 2003 in connection with a plan of arrangement
designed to establish TransCanada as the parent company of TCPL. The arrangement
was approved by TCPL common shareholders on April 25, 2003 and following court
approval, Articles of Arrangement were filed making the arrangement effective
May 15, 2003. The common shareholders of TCPL exchanged each of their TCPL
common shares for one common share of TransCanada. The debt securities and
preferred shares of TCPL remained obligations and securities of TCPL. TCPL
continues to hold the assets it held prior to the arrangement and continues to
carry on business as the principal operating subsidiary of the TransCanada group
of entities. TransCanada does not hold any assets directly other than the common
shares of TCPL.

TransCanada is a Canadian public company. Significant dates and events are set
forth below.

<Table>
<Caption>
DATE                    EVENT
----                    -----
<S>                     <C>
February 25, 2003       TransCanada incorporated under CANADA BUSINESS CORPORATIONS
                        ACT.

May 15, 2003            Certificate of Arrangement issued.
</Table>

The significant dates and events relating to TCPL are set out in TCPL's Renewal
Annual Information Form for the year ended December 31, 2003, dated
February 24, 2004.

TransCanada's registered office and executive office are located at 450 - 1st
Street S.W., Calgary, Alberta, T2P 5H1.

TransCanada does not directly employ any employees or contractors. At Year End,
TransCanada's principal operating subsidiary, TCPL, had approximately
2,325 employees in Canada and the United States, and two employees posted
abroad.

SUBSIDIARIES

TransCanada's significant subsidiaries at Year End are noted below. The list
excludes certain of TransCanada's subsidiaries where:

    - the total assets and total revenue of the individual excluded subsidiaries
      do not constitute more than ten per cent of the consolidated assets and
      revenues of TransCanada at the most recent year end; and

    - the aggregate assets and operating revenues of the excluded subsidiaries
      represent less than 20 per cent of the consolidated assets and revenues of
      TransCanada at the most recent year end.

<Table>
<Caption>
                                                                                PERCENTAGE OWNERSHIP
                                                              ORGANIZED UNDER    BY TRANSCANADA OF
SUBSIDIARY(1)                                                   THE LAWS OF        VOTING SHARES
-------------                                                 ---------------   --------------------
<S>                                                           <C>               <C>
TransCanada PipeLines Limited...............................     Canada                  100
  NOVA Gas Transmission Ltd.................................    Alberta                  100
  TransCanada PipeLine USA Ltd..............................     Nevada                  100
  701671 Alberta Ltd........................................    Alberta                  100
    TransCanada Energy Ltd..................................     Canada                  100
</Table>

NOTE:

(1) Names shown without indentation are direct subsidiaries of TransCanada. The
    indentation of the name of a subsidiary indicates that such subsidiary is
    held by a subsidiary of TransCanada. The percentage ownership shown for a
    subsidiary is that held directly by its immediate parent.

                                                      TRANSCANADA CORPORATION  1
<Page>
GAS TRANSMISSION BUSINESS

CANADA

TransCanada, through subsidiaries, has substantial Canadian natural gas pipeline
holdings, including:

    - a natural gas transmission system throughout the province of Alberta
      ("ALBERTA SYSTEM");

    - a Canadian mainline natural gas transmission system ("CANADIAN MAINLINE");

    - a natural gas transmission system in southeastern B.C., southern Alberta
      and southwestern Saskatchewan ("FOOTHILLS SYSTEM");

    - a natural gas transmission system in southeastern British Columbia
      ("BC SYSTEM"); and

    - a 50 per cent interest in Trans Quebec & Maritimes Pipeline Inc. ("TQM")
      which operates a natural gas transmission system in southeastern Quebec
      ("TQM SYSTEM").

UNITED STATES

TransCanada, through subsidiaries, has natural gas pipeline holdings in the
United States including:

    - a 50 per cent interest in Great Lakes Gas Transmission Limited Partnership
      ("GREAT LAKES");

    - a 41 per cent interest in the Iroquois Gas Transmission System
      ("IROQUOIS");

    - a 61.7 per cent interest in the Portland Natural Gas Transmission System
      Partnership ("PORTLAND");

    - a 12.3 per cent voting interest in Northern Border Pipeline Company
      ("NORTHERN BORDER") through Northern Border Partners, L.P. ("NBP L.P.")
      and a 30 per cent interest in Northern Border through
      TC PipeLines, L.P.; and

    - a one per cent interest in Tuscarora Gas Transmission Company
      ("TUSCARORA").

TransCanada holds a 33.4 per cent interest in TC PipeLines, L.P., a publicly
held limited partnership of which a subsidiary of TransCanada acts as the
general partner. The remaining interest of TC PipeLines, L.P. is widely held by
the public. TC PipeLines, L.P. holds a 30 per cent interest in Northern Border
and a 49 per cent interest in Tuscarora.

POWER BUSINESS

TransCanada owns and/or operates or has under construction or development a
number of power plants, and purchases power under a number of power purchase
arrangements. TransCanada's power plants and power purchase arrangements, in the
aggregate, represent approximately 4,667 megawatts ("MW") of power generation
capacity.

TransCanada holds a 35.6 per cent interest in TransCanada Power, L.P.
("POWER LP"), with the remaining interest being widely held by the public. A
subsidiary of TransCanada acts as the general partner of Power LP. Power LP owns
seven power plants which are managed by TransCanada.

2  TRANSCANADA CORPORATION
<Page>
                      GENERAL DEVELOPMENT OF THE BUSINESS

The general development of TransCanada's business during the last three
financial years, and the significant events or conditions which have had an
influence on that development, are summarized below. Most of these events are
discussed in greater detail under the heading "Business of TransCanada" in
this AIF.

DEVELOPMENTS IN GAS TRANSMISSION BUSINESS

TransCanada's focus has been to sustain, grow and optimize its natural gas
transmission business, including to pursue changes to the regulated business
models that are applicable to TransCanada's operations. Summarized below are
significant developments that have occurred in TransCanada's natural gas
transmission business over the last three years.

2003

In August 2003, TransCanada acquired the remaining interests in Foothills Pipe
Lines Ltd. ("FOOTHILLS") that it did not previously own. The Foothills System,
which is owned by Foothills, complements TransCanada's existing western Canadian
facilities. It extends 1,040 kilometres and carries over 30 per cent of all
Canadian natural gas exports to the United States.

TransCanada, through Foothills, holds certificates for both the Alaskan and
Canadian segments of the Alaska Highway Pipeline Project and also holds
significant right-of-way assets for the project in both Canada and Alaska.

In June 2003, TransCanada, the Mackenzie Delta Producers Group ("MACKENZIE
PRODUCERS") and Mackenzie Valley Aboriginal Pipeline L.P. ("ABORIGINAL PIPELINE
GROUP" or "APG") reached a funding and participation agreement. TransCanada
agreed to finance the APG's share of project definition costs in exchange for
several options, including an ownership interest in the pipeline, certain rights
of first refusal in the Mackenzie Gas Pipeline Project and the right to have the
Mackenzie Delta gas flow into the Alberta System.

In September 2003, TransCanada and ConocoPhillips Company ("CONOCOPHILLIPS")
announced the Fairwinds Partnership to jointly evaluate a liquefied natural gas
("LNG") regasification facility in Harpswell, Maine. TransCanada also continues
to pursue other LNG projects in North America.

TransCanada increased its ownership interest in Portland in the northeastern
United States from 33.3 per cent to 61.7 per cent through acquisitions that took
place in September and December 2003.

For further information about Gas Transmission Developments in 2003, refer to
the headings "Business of TransCanada -- Gas Transmission -- Wholly-Owned
Pipelines" and "Business of TransCanada -- Gas Transmission -- Other Gas
Transmission" below.

2002

In August 2002, TransCanada completed the acquisition of a portion of the
two per cent general partnership interest in NBP L.P., a publicly held limited
partnership which provides TransCanada with a 17.5 per cent voting interest on
its partnership policy committee. NBP L.P. owns interests in pipelines and gas
processing plants in the United States and Canada, including a 70 per cent
interest in Northern Border.

2001

In January 2001, TransCanada announced that it had reached a settlement in
principle regarding 2001 and 2002 tolls and services on the Alberta System. The
settlement established the Alberta System's fixed revenue requirement for the
next two years. The settlement, approved by the Alberta Energy and Utilities
Board ("EUB"), together with the receipt point specific rate design previously
approved by the EUB, formed the basis of the Alberta System's tolls in 2002.

                                                      TRANSCANADA CORPORATION  3
<Page>
In February 2001, TransCanada announced that it had reached a settlement
regarding the 2001 and 2002 services and pricing on the Canadian Mainline that
resolved all issues other than cost of capital. The parties agreed that the
issue of cost of capital would be determined in a different forum. The National
Energy Board ("NEB") approved the settlement.

By December 31, 2001, TransCanada had sold the majority of its natural gas
marketing and trading operations, including its structured products business,
most of its natural gas transportation and storage contracts and its net back
pool operations.

DEVELOPMENTS IN POWER BUSINESS

In the past three years, TransCanada has grown its power business and, in
particular, has increased its generation capacity from approximately 2,253 MW in
2001 to 4,667 MW in 2003. In addition, net earnings from power operations has
increased by $52 million over the same period. Summarized below are significant
developments that have occurred in TransCanada's power business over the last
three years.

2003

In February 2003, TransCanada, as part of a consortium, acquired a
31.6 per cent interest in Bruce Power L.P. ("BRUCE POWER") and a 33.3 per cent
interest in Bruce Power Inc., the general partner of Bruce Power. Bruce Power
leases its generation facilities from Ontario Power Generation Inc. ("OPG"). The
facilities consist of eight nuclear reactors, five of which were operational at
Year End with a capacity of 3,910 MW. An additional reactor with capacity of
750 MW was restarted in January 2004.

The members of the purchasing consortium of Bruce Power have severally, on a
pro-rata basis, guaranteed certain contingent financial obligations of Bruce
Power related to operator licenses, the OPG lease agreement, power sales
agreements and contractor services. Bruce Power continues to be operated by its
pre-acquisition management which is comprised of experienced nuclear power plant
operators. Spent fuel and decommissioning liabilities remain with OPG under the
terms of the lease.

In 2003, TransCanada announced that it would construct two new power plants. The
first of these is the 550 MW natural gas-fired Becancour cogeneration power
plant near Trois-Rivieres, Quebec ("BECANCOUR PLANT") which will supply its
entire power output to Hydro-Quebec. Distribution is provided for under a
20 year power purchase contract. The cost of the Becancour Plant is estimated to
be $550 million, including capitalized interest, and the plant is expected to be
in service in late 2006. TransCanada is also constructing the 90 MW Grandview
natural gas-fired cogeneration power plant on the site of the Irving Oil
refinery in Saint John, New Brunswick ("GRANDVIEW PLANT"). Under a 20 year
tolling arrangement, a subsidiary of Irving Oil Limited will provide fuel to the
Grandview Plant and has contracted for 100 per cent of the Grandview Plant's
heat and electricity output. The cost of the Grandview Plant is estimated to be
approximately $90 million. Construction of the Grandview Plant began in 2003 and
has an expected in-service date at the end of 2004. In addition, construction of
the 165 MW MacKay River power plant was completed in 2003 and the plant is
expected to be put into commercial service in the first quarter of 2004.

2002

In November 2002, TransCanada completed the acquisition of the 300 MW ManChief
power plant, situated approximately 145 kilometres northeast of Denver,
Colorado. The ManChief power plant is operated under contract by an unaffiliated
third party.

2001

In 2001, TransCanada acquired 50 per cent of the power purchase arrangements for
the Sundance B power plant located near Edmonton, Alberta. Sundance B has
capacity to generate 706 MW. In addition, TransCanada completed construction of
two natural gas fired plants: an 80 MW power plant near Carseland, Alberta and a
40 MW power plant near Redwater, Alberta. Finally, TransCanada acquired Curtis
Palmer Hydroelectric Company, L.P. in July 2001, which owns and operates two
hydroelectric plants near Corinth, New York which

4  TRANSCANADA CORPORATION
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have a combined generating capacity of 60 MW. The entire output from the Curtis
Palmer plants are committed to a purchaser under a long-term, fixed-price power
purchase arrangement.

RECENT DEVELOPMENTS

On February 24, 2004, TransCanada announced an agreement to acquire Gas
Transmission Northwest Corporation ("GTNC") from National Energy & Gas
Transmission, Inc. ("NEGT") for approximately US$1.703 billion, including
US$500 million of assumed debt and subject to typical closing adjustments. The
acquisition of GTNC is subject to bankruptcy court approval, including
completion of a court sanctioned auction process, and to regulatory approval.
The agreement contemplates that final bankruptcy court approval of the sale will
be obtained within 75 days of signing the agreement.

GTNC is a natural gas pipeline company that owns and operates two pipeline
systems. The first of these is the Gas Transmission Northwest pipeline system,
formerly known as Pacific Gas Transmission, which extends more than
2,174 kilometres from a connection point on TransCanada's BC System near
Kingsgate, British Columbia on the British Columbia -- Idaho border to a point
near Malin, Oregon on the Oregon -- California border. The second pipeline
system, the North Baja pipeline system, extends 128 kilometres from a point near
Ehrenberg, Arizona to a point near Ogilby, California on the California -- Baja
California, Mexico border. The natural gas transported on North Baja system
comes primarily from supplies in the southwestern United States for markets in
Northern Baja California, Mexico. The sale of the North Baja pipeline is subject
to a right of first refusal held by an unaffiliated company.

In a referendum held on March 9, 2004, the residents of Harpswell, Maine voted
against leasing a town-owned site for an LNG regasification facility which the
Fairwinds Partnership had been evaluating for development. The Fairwinds
Partnership subsequently announced that it has suspended any further work on the
project in Harpswell, Maine.

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                            BUSINESS OF TRANSCANADA

The following table shows TransCanada's revenues from operations by segment,
classified geographically, for the years ended December 31, 2003 and 2002.

<Table>
<Caption>
                                                                      2003                    2002
                                                              ---------------------   ---------------------
                                                              (millions of dollars)   (millions of dollars)
<S>                                                           <C>                     <C>
GAS TRANSMISSION
  Canada -- Domestic Deliveries.............................          2,492                   2,076
  Canada -- Export Deliveries(1)............................          1,291                   1,641
  United States.............................................            173                     204
                                                                      -----                   -----
                                                                      3,956                   3,921
                                                                      -----                   -----

POWER
  Canada -- Domestic Deliveries.............................            765                     655
  Canada -- Export Deliveries(1)............................              2                      --
  United States.............................................            634                     638
                                                                      -----                   -----
                                                                      1,401                   1,293
                                                                      -----                   -----
TOTAL REVENUES(2)...........................................          5,357                   5,214
                                                                      =====                   =====
</Table>

NOTES:

(1) Export deliveries include gas transmission revenues attributable to
    deliveries to United States pipelines and power deliveries to United States
    markets.

(2) Revenues are attributed to countries based on country of origin of product
    or service.

GAS TRANSMISSION

TransCanada's transmission business principally includes the operation of the
Canadian Mainline, the Alberta System, the Foothills System, the BC System and
TransCanada's other investments in natural gas pipelines located primarily in
Canada and the United States.

Canadian natural gas transmission services are provided under gas transportation
tariffs that provide for cost recovery including return of and return on capital
as approved by the applicable regulatory authorities. In some cases, such
tariffs are determined under agreements with customers and other interested
parties, subject to regulatory approval. The net income of the gas transmission
business is generated based on such tariffs. Under the current regulatory model,
net income is not affected by fluctuations in the commodity price of natural
gas, but such fluctuations influence both production levels and the natural gas
basins from which North American natural gas users elect to purchase natural gas
supplies.

The volume of natural gas shipments on the Canadian Mainline, the Alberta
System, the Foothills System and the BC System depends on the volume of natural
gas produced and sold both in and outside of Alberta, and on the construction
and availability of other pipeline capacity. The natural gas transported by
TransCanada comes primarily from the Western Canada Sedimentary Basin ("WCSB").
The WCSB's estimated remaining established reserves of natural gas are
approximately 57 trillion cubic feet ("TCF") with a remaining
reserve-to-production ratio of approximately nine years at current levels of
production. Incremental reserves are continually being discovered, and generally
maintain the reserve-to-production ratio at close to nine years. Production of
natural gas from the WCSB has not increased since 2001. With the expansion of
capacity on TransCanada's wholly and partially owned pipelines over the past
decade and the competition provided by other pipelines, combined with
significant growth in natural gas demand in Alberta, TransCanada anticipates
there will be excess pipeline capacity out of the WCSB for the foreseeable
future.

In addition to the information concerning the gas transmission segment of
TransCanada's business set out herein, further information can be found in the
MD&A under the heading "Gas Transmission -- Wholly-Owned Pipelines -- Business
Risks".

6  TRANSCANADA CORPORATION
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WHOLLY-OWNED PIPELINES

ALBERTA SYSTEM

The Alberta System, held by NOVA Gas Transmission Ltd. ("NGTL"), a subsidiary of
TransCanada, is an Alberta-wide natural gas transmission system that collects
and transports natural gas for use in Alberta and for delivery to connecting
pipelines, such as the Canadian Mainline, the Foothills System and the BC
System, as well as to other unaffiliated pipelines, at various points on the
Alberta border for delivery to eastern Canada, British Columbia and the
United States. The Alberta System includes approximately 22,700 kilometres of
mainlines and laterals.

Capital expenditures, which are dependent in part upon requests for increased
transportation service by customers, were $53 million in 2003. TransCanada
anticipates approximately $90 million of capital spending on the Alberta System
in 2004. These capital expenditures will be primarily related to capacity
expansion.

The following table sets forth the annual volumes delivered off the Alberta
System for the years ended December 31, 2003 and 2002.

<Table>
<Caption>
                                                                      2003                   2002
                                                              --------------------   --------------------
DELIVERY POINTS                                               VOLUME(1)   PER CENT   VOLUME(2)   PER CENT
---------------                                               ---------   --------   ---------   --------
                                                                (Bcf)                  (Bcf)
<S>                                                           <C>         <C>        <C>         <C>
Alberta.....................................................      539        14          475        11
Eastern Canada and Eastern United States....................    1,552        40        1,738        42
Western United States.......................................      665        17          750        18
Midwestern United States....................................    1,117        29        1,155        28
British Columbia............................................       10        --           28         1
                                                                -----       ---        -----       ---
TOTAL.......................................................    3,883       100        4,146       100
                                                                =====       ===        =====       ===
</Table>

NOTES:

(1) Of the total volumes transported in 2003, 1.89 Tcf of natural gas was
    delivered to the Canadian Mainline, 674 billion cubic feet ("BCF") of
    natural gas was delivered to the BC System (including the BC portion of the
    Foothills System) and 777 Bcf of natural gas was delivered to the
    Saskatchewan portion of the Foothills System.

(2) Of the total volumes transported in 2002, 2.09 Tcf of natural gas was
    delivered to the Canadian Mainline, 773 Bcf of natural gas was delivered to
    the BC System (including the BC portion of the Foothills System) and
    779 Bcf of natural gas was delivered to the Saskatchewan portion of the
    Foothills System.

    ALBERTA SYSTEM CONTRACTED FIRM TRANSPORTATION SERVICES

As of Year End, the Alberta System was providing transportation for 182 shippers
pursuant to approximately 15,500 firm service transportation contracts.

As of Year End, the weighted average remaining term of firm transportation
contracts was approximately 2.4 years, compared to a weighted average remaining
term of 3.0 years as of December 31, 2002. Currently, these contracts are
renewable by the customer providing notice to NGTL at least twelve months prior
to the expiry of the current contract term. The Alberta System has seen a
30 per cent decrease in firm contracted capacity since the 1998-1999 contract
year. Further information about the Alberta System can be found in the MD&A
under the headings "Gas Transmission -- Wholly-Owned Pipelines -- Financial
Review" and "Gas Transmission -- Wholly-Owned Pipelines -- Business Risks".

    REGULATION OF THE ALBERTA SYSTEM

The construction and operation of the Alberta System is regulated by the EUB
primarily under the provisions of the GAS UTILITIES ACT (Alberta) and the
PIPELINE ACT (Alberta). NGTL also requires the EUB's approval for rates, tolls
and charges, and the terms and conditions under which it provides its services.
Under the provisions of the PIPELINE ACT, the EUB oversees various matters,
including the economic, orderly and efficient development of the pipeline, the
operation and abandonment of the pipeline, and certain related pollution and
environmental

                                                      TRANSCANADA CORPORATION  7
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conservation issues. In addition to requirements under the PIPELINE ACT, the
construction and operation of natural gas pipelines in Alberta are subject to
certain provisions of, and require certain approvals under, other provincial
legislation such as the ENVIRONMENTAL PROTECTION AND ENHANCEMENT ACT (Alberta).

Alberta System tolls are designed to generate sufficient revenues for NGTL to
recover operating expenses, depreciation, taxes and financing costs of the
Alberta System, including interest on debt and payments on securities
attributable to the Alberta System, together with a return on deemed common
equity.

In February 2003, NGTL negotiated the Alberta System 2003 Revenue Requirement
Settlement ("2003 SETTLEMENT") with certain shippers and other interested
parties. Under the Alberta System 2003 Settlement, approved by the EUB on
June 24, 2003, NGTL's 2003 revenue requirement was fixed at $1.277 billion,
subject to certain adjustments, including variances from previous agreements,
CO(2) management service costs, and annual foreign exchange amortization
amounts.

In March 2003, NGTL negotiated the 2003 Tariff Settlement with certain shippers
and interested parties. The 2003 Tariff Settlement, approved by the EUB on
June 24, 2003, established NGTL's 2003 rates, tolls and charges for services,
certain new services and new terms and conditions for certain existing services.

In July 2003, NGTL filed evidence in the EUB's generic cost of capital
proceeding ("GCOC"). NGTL is seeking a return of 11 per cent on a deemed common
equity of 40 per cent for the Alberta System. NGTL has been advised by the EUB
that it expects to adopt a standardized approach to determining return and
capital structure for utilities under its jurisdiction through the GCOC. NGTL
expects the EUB to issue its decision in the third quarter of 2004.

In September 2003, NGTL filed Phase 1 of its Alberta System 2004 General Rate
Application ("GRA-PHASE 1") with the EUB. As part of the GRA-Phase 1, NGTL
applied to increase the composite depreciation rate from 4.00 per cent to
4.13 per cent. NGTL filed Phase 2 of the GRA, dealing with rate design and
services, in November 2003 ("GRA-PHASE 2"). The EUB will consider the
GRA-Phase 1 and GRA-Phase 2 in hearings scheduled to commence on April 1, 2004
and June 1, 2004, respectively.

On December 16, 2003, the EUB approved interim rates effective January 1, 2004,
which will remain in place until final 2004 rates are determined.

    TOLLING METHODOLOGY FOR THE ALBERTA SYSTEM

The current tolling methodology and rate design for the Alberta System features
differentiated pricing for each gas receipt point on the Alberta System. The
receipt-point price is dependent on geographic location, the diameter of the
pipe through which the customer's natural gas travels, and the term of the
transportation contract.

CANADIAN MAINLINE

The Canadian Mainline, held by TCPL, consists of approximately
14,900 kilometres of pipeline system transporting natural gas from the Alberta
border east to various delivery points in Canada and at the United States
border.

Capital expenditures on the Canadian Mainline in 2003 were approximately
$48 million. These expenditures were primarily for maintenance capital and plant
retirement projects. TransCanada anticipates approximately $120 million of
capital spending on the Canadian Mainline in 2004. The expected 2004 capital
expenditures primarily relate to capacity capital, maintenance capital and plant
retirement projects.

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The following table sets forth the revenues earned and volumes delivered for the
years ended December 31, 2003 and 2002 for the Canadian Mainline.

<Table>
<Caption>
                                                                2003                               2002
                                                  --------------------------------   --------------------------------
                                                        REVENUES          PER CENT        REVENUES(1)        PER CENT
                                                  ---------------------   --------   ---------------------   --------
                                                  (millions of dollars)              (millions of dollars)
REVENUES
<S>                                               <C>                     <C>        <C>                     <C>
Domestic........................................          1,035              46                610              28
Export..........................................          1,214              54              1,568              72
                                                          -----             ---              -----             ---
TOTAL...........................................          2,249             100              2,178             100
                                                          =====             ===              =====             ===
</Table>

<Table>
<Caption>
                                                                2003                               2002
                                                  --------------------------------   --------------------------------
                                                         VOLUME           PER CENT          VOLUME           PER CENT
                                                         ------           --------          ------           --------
                                                          (Bcf)                              (Bcf)
VOLUMES TRANSPORTED
<S>                                               <C>                     <C>        <C>                     <C>
Domestic........................................          1,295              49              1,223              47
Export..........................................          1,333              51              1,407              53
                                                          -----             ---              -----             ---
TOTAL...........................................          2,628             100              2,630             100
                                                          =====             ===              =====             ===
</Table>

NOTE:

(1) 2002 domestic revenues were reduced as a result of transportation service
    credits related to two new services offered in that year. Total credits of
    $662 million were reported against 2002 domestic revenues. These services
    were discontinued in 2003.

    CANADIAN MAINLINE CONTRACTED FIRM TRANSPORTATION SERVICES

As of Year End, the Canadian Mainline was providing transportation for 127
shippers pursuant to 352 firm service transportation contracts. Approximately
51 per cent of the total daily transportation volume represented by these
contracts relates to contracts for delivery of natural gas at United States
border points.

As of Year End, the weighted average remaining term of firm transportation
contracts on the Canadian Mainline was approximately 3.2 years compared to a
weighted average remaining term of 3.7 years at December 31, 2002. These
contracts are renewable by the customer providing notice to TransCanada at least
six months prior to the expiry of the current contract term. The Canadian
Mainline last operated at capacity with one year or longer firm service
contracts during the 1998-1999 contract year. Since then, the Canadian Mainline
has seen a 36 per cent decrease in firm contracted deliveries and a
15 per cent decrease in total deliveries originating at the Alberta border and
in Saskatchewan. Further information can be found in the MD&A under the headings
"Gas Transmission -- Wholly-Owned Pipelines -- Financial Review" and "Gas
Transmission -- Wholly-Owned Pipelines -- Business Risks".

    REGULATION OF THE CANADIAN MAINLINE

Under the terms of the NATIONAL ENERGY BOARD ACT (Canada), the NEB regulates the
construction, operation, tolls and tariffs of the Canadian Mainline. The NEB is
the authority under the CANADIAN ENVIRONMENTAL ASSESSMENT ACT responsible for
considering the environmental and social impacts of proposed pipeline projects.
The Canadian Mainline tolls are designed to generate sufficient revenues for
TCPL to recover operating expenses, depreciation, taxes and financing costs of
the Canadian Mainline, including interest on debt and payments on preferred
securities attributable to the Canadian Mainline, together with a return on
deemed common equity.

The tolls are composed of a demand charge component and a commodity charge
component. The demand charge is independent of the volumes shipped and is
designed to recover fixed costs, such as fixed operating expenses, financing
costs (including a return on deemed common equity), taxes and depreciation. The
commodity charge is designed to recover variable operating costs. These charges
are paid by shippers under transportation contracts with TCPL.

                                                      TRANSCANADA CORPORATION  9
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In June 2002, the NEB denied TCPL's request to adopt an after-tax weighted
average cost of capital methodology for establishing investment return and an
after-tax weighted average cost of capital of 7.5 per cent, equivalent to a
12.5 per cent rate of return on deemed common equity of 40 per cent ("FAIR
RETURN DECISION"). The NEB instead affirmed a formula established in 1995 for
setting return on common equity. Under this formula, the rate of return on
common equity for the Canadian Mainline was 9.61 per cent in 2001,
9.53 per cent in 2002 and 9.79 per cent in 2003. The NEB increased deemed common
equity to 33 per cent from the previously approved level of 30 per cent. In
September 2002, TCPL filed a request for a review and variance of the Fair
Return Decision which was denied by the NEB in February 2003. TCPL maintains
that the Fair Return Decision issued in June 2002 does not recognize the
long-term business risks of the Canadian Mainline and therefore, initiated an
appeal of the NEB's decision not to review and vary the Fair Return Decision, to
the Federal Court of Appeal. In May 2003, TCPL was granted leave to appeal. The
appeal hearing was heard the week of February 16, 2004 and the Federal Court of
Appeal's decision is expected to be rendered later in 2004.

In September 2002, TCPL filed an application with the NEB to approve new tolls
on the Canadian Mainline to be effective January 1, 2003 and the related public
hearings began in February 2003. In July 2003, the NEB issued its decision on
this matter which approved all key components of the application including an
increase in the composite depreciation rate from 2.89 per cent to
3.42 per cent, introduction of a new tolling zone in southwestern Ontario, an
increase to the Interruptible Transportation bid floor price and continuation of
the Fuel Gas Incentive Program. The rates approved in this decision are still
considered interim pending the disposition of TCPL's appeal to the Federal Court
of Appeal regarding the Fair Return Decision.

On December 18, 2003, the NEB approved interim rates effective January 1, 2004,
which should remain in place until final 2004 tolls are determined.

On January 26, 2004, TCPL filed an application with the NEB to determine tolls
applicable to the Canadian Mainline, effective January 1, 2004. In this
application, TCPL has requested an 11 per cent return on deemed common equity of
40 per cent.

FOOTHILLS SYSTEM

The Foothills System, which is regulated by the NEB and the Northern Pipeline
Agency of Canada, is a 1,040 kilometre natural gas pipeline that transports
western Canadian natural gas from central Alberta to connecting pipelines for
transportation to markets in the U.S. Midwest, Pacific Northwest, California and
Nevada and is owned by TransCanada. TransCanada merged Foothills' operations
with its own in February 2004. TransCanada previously held a 50 per cent
interest in Foothills and in August 2003, acquired the remaining interest.

The Alaska Highway Pipeline Project, which would bring Prudhoe Bay natural gas
from Alaska to markets in Canada and the United States, involves pipeline
construction in Canada and Alaska. Foothills holds the certificates to build the
Canadian portion of the Alaska highway pipeline project and subsidiaries of
Foothills and TransCanada hold certificates to build the Alaskan part of this
project.

TransCanada anticipates that it will spend approximately $7 million on the
Foothills System in 2004, which expenditures will primarily be for maintenance
capital.

BC SYSTEM

The BC System consists of approximately 200 kilometres of pipeline that carries
natural gas from a connecting point with the Alberta System through the
southeastern corner of British Columbia to connect with the GTNC pipeline system
at the Canada-United States border near Kingsgate, British Columbia. The GTNC
pipeline system connects to California and the northwestern United States.
Further information can be found about the GTNC pipeline system under the
heading "General Development of the Business -- Recent Developments", above.

10  TRANSCANADA CORPORATION
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In 2003, capital expenditures on the BC System were approximately $2 million,
primarily for maintenance capital. TransCanada anticipates approximately
$2 million of capital spending on the BC System in 2004, primarily for
maintenance capital.

The BC System is regulated by the NEB on a complaint basis and the tolls are
based on a cost-of-service methodology. In December 2003, the NEB adopted
interim rates and charges for 2004 pending the resolution of certain issues with
shippers on the BC System.

OTHER GAS TRANSMISSION

TransCanada actively pursues natural gas pipeline and pipeline-related
development, acquisition and operation opportunities in Canada and the
United States, where these opportunities are driven by strong customer demand.

    GREAT LAKES

TransCanada holds a 50 per cent interest in Great Lakes which operates a
3,387 kilometre pipeline system. This system transports Canadian natural gas
from its interconnection with the Canadian Mainline at Emerson, Manitoba to
markets in central Canada at St. Clair, Ontario and serves markets in the
eastern and midwestern United States. Great Lakes' rates are based on a five
year settlement agreement which was approved by the U.S. Federal Energy
Regulatory Commission ("FERC") in 2001 and is effective until October 31, 2005.

    TC PIPELINES, L.P.

TC PipeLines, L.P., a U.S. publicly-held limited partnership, was formed to
acquire, own and participate in the management of U.S. based pipeline assets. In
May 1999, TransCanada's 30 per cent general partner interest in Northern Border
was conveyed to TC PipeLines, L.P. in exchange for cash and a 33.4 per cent
interest in TC PipeLines, L.P., 31.4 per cent of which is comprised of common
units and subordinated units, and two per cent of which is a general partnership
interest. TC PipeLines, L.P. also issued common units to the public. Northern
Border operates a 2,010 kilometre natural gas pipeline system which connects
with the Foothills System in Saskatchewan and serves the midwestern
United States, terminating at North Hayden, Indiana. In October 2001, Northern
Border completed a 55 kilometre pipeline extension and installed additional
compression that provides 545 MMcf/d of incremental transportation capacity to
North Hayden, Indiana and expanded Northern Border's delivery capability into
the Chicago area by approximately 30 per cent.

On September 1, 2000, TC PipeLines, L.P. acquired a 49 per cent general partner
interest in Tuscarora from TransCanada, and TransCanada, through a subsidiary,
retains a one per cent general partner interest in Tuscarora. Tuscarora is a
386 kilometre natural gas pipeline system which has been in operation since
December 1995. This system transports natural gas from Malin, Oregon to
Wadsworth, Nevada and delivers to points in northeastern California. The Hungry
Valley lateral extension, Tuscarora's second city-gate connection into Reno,
Nevada, was completed in January 2001. On December 1, 2002, Tuscarora completed
construction and placed into service an expansion of its pipeline system,
consisting of two compressor stations and a 17 kilometre pipeline extension from
the previous terminus near Reno, Nevada to Wadsworth, Nevada. The expansion
serves growing power generation and residential requirements in northern Nevada.
Tuscarora's current contracted capacity is approximately 180 MMcf/d. In
December 2003, Tuscarora received management approval for an expansion project
which will provide for approximately 57 MMcf/d of incremental capacity on its
system. The capital cost for this expansion project is estimated to be
US$16.6 million and the expansion is scheduled to commence service in
November 2005.

A subsidiary of TransCanada acts as the general partner of TC PipeLines, L.P.

                                                     TRANSCANADA CORPORATION  11
<Page>
    IROQUOIS

Iroquois connects with the Canadian Mainline near Waddington, New York and
delivers natural gas to customers in the northeastern United States ("IROQUOIS
SYSTEM"). TransCanada's aggregate interest in the Iroquois System, through two
subsidiaries, is 41 per cent.

Iroquois' Eastchester extension and expansion was completed and the facilities
were put into service in February 2004. This expansion extends the Iroquois
System from Long Island into New York City, adding 59 kilometres to the Iroquois
System and will provide an additional 230 MMcf/d of new service into this
market. The Iroquois System is now 663 kilometres in length.

In October 2003, FERC approved Iroquois' rate settlement ("IROQUOIS
SETTLEMENT"), which was filed in August 2003. The Iroquois Settlement is
effective from January 1, 2004 until December 31, 2007, during which period
Iroquois will reduce rates by approximately 13 per cent. Iroquois filed a
separate rate application with FERC in January 2004 to establish rates for the
Eastchester expansion. FERC has issued an order accepting Iroquois' application
and the approved rates will become effective July 1, 2004, subject to refund and
conditions.

    TRANS QUEBEC & MARITIMES

TransCanada holds a 50 per cent interest in the 572 kilometre TQM System which
connects with the Canadian Mainline. TQM serves markets in Quebec and connects
with the Portland system. In January 2003, TransCanada began performing the
majority of operating and administrative functions of TQM pursuant to a services
agreement. The TQM System is regulated by the NEB.

    PORTLAND

In September 2003, TransCanada purchased an additional 10.1 per cent ownership
interest in Portland for approximately US$19 million. In December 2003,
TransCanada purchased a further 18.3 per cent interest for approximately
US$32 million. As a result of these two transactions, TransCanada currently
holds a 61.7 per cent controlling interest in Portland.

Portland is a 471 kilometre interstate pipeline that interconnects with the
pipeline system of TQM at the United States-Canada border near East Hereford,
Quebec, and with the Tennessee Gas Pipeline in Haverhill and Dracut,
Massachusetts. The southern sections of Portland's system, consisting of
163 kilometres of pipeline, are part of the joint facilities shared with the
Maritimes and Northeast Pipeline. Portland holds a one-third ownership interest
in the joint facilities.

Portland and customer representatives reached an agreement on new tolls and
Portland submitted an uncontested agreement to FERC in October 2002, which was
approved in its entirety in January 2003. The settlement agreement is effective
from April 1, 2002 until April 1, 2008.

    NORTHERN DEVELOPMENT

In 2003, TransCanada continued to pursue pipeline opportunities to move both
Mackenzie Delta and Alaska North Slope natural gas to markets throughout North
America. TransCanada worked with key stakeholders in the interest of
participating in any potential pipeline project.

TransCanada, the Mackenzie Producers and the APG reached funding and
participation agreements in June 2003 that enable the APG to become a full
participant in the largest component of the proposed Mackenzie Gas Pipeline
Project which involves a natural gas pipeline system in the Mackenzie Valley
that would move Mackenzie Delta natural gas through a natural gas pipeline being
constructed from Inuvik, Northwest Territories to the northern border of
Alberta, where it would then connect with the Alberta System. TransCanada has
agreed to finance the APG for its one-third share of project definition costs.
This share is currently estimated to be $90 million over three years. This loan
will be repaid from the APG's share of future pipeline revenues if the project
proceeds. In 2003, TransCanada funded $34 million of this loan. Under the terms
of the agreement, TransCanada gains an immediate opportunity to acquire up to
five per cent equity ownership of the pipeline at the time of construction. In
addition, TransCanada also gains certain rights of first refusal if any of the
Mackenzie Producers choose to sell their equity. TransCanada would be entitled
to acquire

12  TRANSCANADA CORPORATION
<Page>
50 per cent of any divestitures of existing partners and to obtain a one-third
interest in all expansion opportunities once the APG reaches a one-third share,
with the Mackenzie Producers and the APG sharing the balance.

TransCanada continued to work with other Alaska Highway pipeline stakeholders in
2003 to advance the project. Resolution of Foothills' Special Charge was reached
with Foothills shippers and the Canadian Association of Petroleum Producers, and
subsequently approved by the NEB in March 2003. The resolution waives Foothills'
obligation to repay all past and future Special Charge collections when the
Alaskan gas starts flowing on the Foothills System. In October 2003, the
Government of Canada, reaffirmed its preference to utilize the framework
provided in the NORTHERN PIPELINE ACT (Canada) which granted Foothills the
certificates to transport Alaskan gas across Canada.

In January 2004, Foothills and the Kaska First Nation signed an Agreement in
Principle that provides the framework for a future participation agreement. The
Agreement in Principle marks the completion of the second stage of negotiations
that is expected to lead to a participation agreement for the Alaska Highway
Pipeline Project.

    LIQUEFIED NATURAL GAS

In September 2003, TransCanada and ConocoPhillips announced the Fairwinds
Partnership to jointly evaluate a site in Harpswell, Maine for the development
of an LNG regasification facility. Approval must first be obtained for the
Fairwinds Partnership to lease a town-owned site for the LNG regasification
facility and the residents of the Town of Harpswell are expected to vote on this
matter at a referendum which is to be held in March 2004.

    VENTURES LP

TransCanada Pipeline Ventures Limited Partnership ("VENTURES LP"), which is a
subsidiary of TransCanada, owns a 121 kilometre pipeline and related facilities,
which supply natural gas to the oil sands region of northern Alberta, and a
27 kilometre pipeline which supplies natural gas to a petrochemical complex at
Joffre, Alberta.

    CROSSALTA

TransCanada holds a 60 per cent interest in Crossfield Storage Joint Venture
which controls an underground gas storage facility near Crossfield, Alberta. The
facility is commercially operated on behalf of the joint venture by CrossAlta
Gas Storage & Services Ltd., in which TransCanada also holds a 60 per cent
interest.

    TRANSGAS

TransCanada holds a 46.5 per cent interest in TransGas de Occidente S.A., a
Colombian joint venture project which operates a 344 kilometre natural gas
pipeline between the cities of Mariquita and Cali, Colombia.

REGULATION OF NORTH AMERICAN PIPELINES

Under the NATIONAL ENERGY BOARD ACT (Canada), the NEB regulates the construction
and operation of interprovincial pipelines and the Canadian portion of
international pipelines as well as the traffic, tolls and tariffs applicable to
those pipelines. The NEB also approves the import and export of natural gas.

Pipelines located within provincial boundaries are regulated by the applicable
provincial regulatory body.

The construction and operations of the Alberta System, Ventures LP's northern
Alberta oil sands pipeline and Joffre pipeline are regulated by the EUB.

With respect to TransCanada's United States pipeline investments, the NATURAL
GAS ACT OF 1938 ("NGA") establishes the framework for regulation of interstate
natural gas transportation, facilities construction and terms and conditions of
service. FERC is charged with implementing the NGA's requirements. The terms and
conditions of service under which TransCanada transports natural gas on the
Great Lakes' system are subject to NGA authorizations issued by FERC.
Interconnected natural gas pipelines and other United States interstate pipeline
projects in which TransCanada has investments are subject to FERC and NGA
regulation, as well as certain state regulatory requirements.

                                                     TRANSCANADA CORPORATION  13
<Page>
Further information about the regulation of the Canadian Mainline, Alberta
System and other pipeline systems, can be found under the headings "Gas
Transmission -- Wholly-Owned Pipelines" and "Gas Transmission -- Other Gas
Transmission" above and in the MD&A under the heading "Gas
Transmission -- Canadian Regulatory Environment".

COMPETITION IN GAS TRANSMISSION

TransCanada's wholly-owned pipelines are connected to and supplied by one of
North America's largest natural gas basins, the WCSB. However, the WCSB is
maturing and it will be a challenge for producers to increase production in this
basin. Other pipeline systems connected to the WCSB, including some of
TransCanada's interconnected pipelines, have expanded in the last few years.
These expansions have provided shippers with additional flexibility and
competitive choices when moving WCSB supplies to market. The WCSB gas supply is
not expected to increase.

The Alberta System is the primary transporter of natural gas within the province
of Alberta and to provincial boundary points. However, there are a number of
alternative pipelines which offer price advantages and which compete with the
Alberta System. In anticipation of and in response to these developments, the
Alberta System's current tolling methodology was designed to enhance NGTL's
ability to provide competitive pricing and service flexibility and to provide
TransCanada with the ability to respond to potential future bypass pipelines.

The Canadian Mainline is now one of five natural gas pipelines providing
transportation service from the WCSB. Increased competition has led to the
non-renewal of some of the firm service contracts on the Alberta System and the
Canadian Mainline, and has led to decreased utilization on certain pipeline
segments.

Further information about business risks in Gas Transmission can be found under
the heading "Risk Factors -- Gas Transmission" below and in the MD&A under the
headings "Gas Transmission -- Wholly-Owned Pipelines -- Business Risks" and "Gas
Transmission -- Other Gas Transmission -- Business Risks".

RESEARCH AND DEVELOPMENT

In 2003, TransCanada spent approximately $9.3 million on research and
development activities of which approximately $3.5 million related to research
on pipeline integrity management, approximately $2.8 million on other regulated
pipeline activities and approximately $3.0 million on non-regulated pipeline
ventures.

POWER

The power segment of TransCanada's business includes the construction,
ownership, operation and management of power plants and the marketing of
electricity, and provides electricity account services to energy and industrial
customers. This segment operates in Canada and the United States.

TransCanada owns and operates:

    - cogeneration plants in Alberta at Carseland (80 MW), Redwater (40 MW),
      Bear Creek (80 MW) and MacKay River (165 MW);

    - a waste-heat fuelled power plant at the Cancarb facility in Medicine Hat,
      Alberta (27 MW);

    - the Curtis Palmer hydroelectric power facility near Corinth, New York
      (60 MW); and

    - the gas-fired, combined-cycle Ocean State Power plant in Burrillville,
      Rhode Island (560 MW).

TransCanada has long-term power purchase arrangements in place for:

    - 100 per cent of the production of the Sundance A (560 MW) and
      50 per cent interest, through a partnership, of the production of
      Sundance B (353 MW of 706 MW) power facilities near Wabamun, Alberta.

14  TRANSCANADA CORPORATION
<Page>
TransCanada operates the following facilities owned by Power LP:

    - five cogeneration power plants in Ontario and one wood-fired power plant
      in British Columbia (264 MW); and

    - one cogeneration power plant in the United States (64 MW).

TransCanada owns, but does not operate:

    - the simple-cycle ManChief power plant near Brush, Colorado (300 MW);

    - a 31.6 per cent interest in the nuclear power generation facilities of
      Bruce Power in Ontario (1,472 MW of 4,660 MW total that is in operation
      and under commissioning); and

    - a 17 per cent interest in Huron Wind L.P. (2 MW of a total of 9 MW).

TransCanada owns the following facilities which are under construction:

    - the 550 MW cogeneration Becancour plant, which is expected to be complete
      in late 2006; and

    - the 90 MW cogeneration Grandview plant, which is expected to be complete
      by the end of 2004.

While a significant portion of TransCanada's western plant generation is sold
under long-term contract, in order to mitigate price risk, some power positions
are held for short-term transactions. The western power marketing group's
primary function is to manage those open positions in order to maximize the
value of TransCanada's power assets.

TransCanada has a power marketing office in Westborough, Massachusetts to manage
the Ocean State Power purchase agreements and market supply obligations, and to
take advantage of additional marketing opportunities in the New England and
New York markets. The office also markets the output of Power LP's Castleton
power plant.

Output from the Curtis Palmer facilities is sold under a fixed-price, long-term
power purchase agreement to Niagara Mohawk Power Corporation for a term of more
than 25 years. In 2000, the Curtis Palmer facility was re-licensed by FERC to
operate for a period of 40 years.

The entire capacity of the ManChief power plant is sold under long-term tolling
contracts that expire in 2012. Operations and maintenance services for the
ManChief power plant will continue to be supplied by the current contracted
unaffiliated service provider.

Operations and maintenance services for the Bruce Power plants continue to be
supplied by the pre-acquisition management and staff of Bruce Power. Bruce Power
sells the output from the Bruce Power plants through a combination of
fixed-price contracts and spot market sales.

TransCanada and OPG, through their limited partnership, Portlands Energy
Centre L.P., continue to study the feasibility of developing a 550 MW
combined-cycle natural gas-fuelled cogeneration power plant on a former power
generation site in the Portlands area of the Toronto, Ontario downtown
waterfront.

TransCanada continues to investigate potential power investment opportunities
throughout North America.

TRANSCANADA POWER, L.P.

TransCanada manages, operates and is the largest unit holder of Power LP, a
publicly-held limited partnership that owns seven power plants. TransCanada
holds 35.6 per cent of the units of Power LP.

Power LP owns combined-cycle power plants, fuelled by a combination of natural
gas and waste heat from adjacent TransCanada compression facilities, in Nipigon,
Kapuskasing, North Bay and Tunis, Ontario. It also owns a natural gas
cogeneration plant at Castleton-on-Hudson, New York and wood-waste fuelled power
plants near Hearst, Ontario and at Williams Lake, British Columbia. TransCanada
supplies the natural gas fuel for certain of Power LP's plants.

Power LP's seven plants have a total generating output of 328 MW. It is the
largest publicly traded power limited partnership in Canada with a market
capitalization of approximately $1.4 billion.

                                                     TRANSCANADA CORPORATION  15
<Page>
POWER PERFORMANCE

The following tables set forth the revenues earned, power volumes marketed and
generation capacity in Canada and the United States for the years ended
December 31, 2003 and 2002 from TransCanada's power operations.

<Table>
<Caption>
                                                               2003                               2002
                                                 --------------------------------   --------------------------------
                                                       REVENUES          PER CENT         REVENUES          PER CENT
                                                 ---------------------   --------   ---------------------   --------
                                                 (millions of dollars)              (millions of dollars)
REVENUES
<S>                                              <C>                     <C>        <C>                     <C>
Canada -- Domestic.............................            765              55                655              51
Canada -- Export...............................              2              --                 --              --
United States..................................            634              45                638              49
                                                         -----             ---              -----             ---
TOTAL..........................................          1,401             100              1,293             100
                                                         =====             ===              =====             ===
</Table>

<Table>
<Caption>
                                                            2003                          2002
                                                 ---------------------------   ---------------------------
                                                      VOLUME        PER CENT        VOLUME        PER CENT
                                                 ----------------   --------   ----------------   --------
                                                 (gigawatt hours)              (gigawatt hours)
VOLUMES SOLD(1)(2)(3)
<S>                                              <C>                <C>        <C>                <C>
Canada -- Domestic.............................       20,575           74           12,560           62
Canada -- Export...............................           38           --               10           --
United States..................................        7,397           26            7,541           38
                                                      ------          ---           ------          ---
TOTAL..........................................       28,010          100           20,111          100
                                                      ======          ===           ======          ===
</Table>

<Table>
<Caption>
                                                            2003                         2002
                                                 --------------------------   --------------------------
                                                   GENERATION      PER CENT     GENERATION      PER CENT
                                                 ---------------   --------   ---------------   --------
                                                      (MW)                         (MW)
GENERATION CAPACITY(1)(2)(3)(4)
<S>                                              <C>               <C>        <C>               <C>
Canada.........................................       2,641           73           1,404           59
United States..................................         984           27             984           41
                                                      -----          ---           -----          ---
TOTAL..........................................       3,625          100           2,388          100
                                                      =====          ===           =====          ===
</Table>

NOTES:

(1) Includes 100 per cent of volumes sold by, and the generation capacity of,
    Power LP (after eliminating intercompany transactions with TransCanada).

(2) TransCanada, directly or indirectly, acquires 560 MW from Sundance A and
    353 MW from Sundance B through long-term power purchase arrangements, which
    represent 100 per cent of the Sundance A and 50 per cent of the Sundance B
    power plant output, respectively.

(3) Includes 31.6 per cent of Bruce Power.

(4) Excludes MacKay River (165 MW), Becancour (550 MW), Grandview (90 MW) and
    Bruce A, Unit 3 (237 MW) which were not in commercial service at Year End.

REGULATION OF POWER

TransCanada's investments in Ocean State Power, Curtis Palmer, ManChief, and
TransCanada's United States electric power marketing activities are subject to
the jurisdiction of FERC under the U.S. FEDERAL POWER ACT, as well as the
jurisdiction of certain state regulatory authorities.

Deregulation of the power industry is proceeding at different stages throughout
most of the markets in which TransCanada currently operates, which are primarily
Alberta, Ontario and the northeastern United States. In 2001, Alberta
deregulated its generation assets and opened the market for retailers and
wholesalers. In May 2002, the government of Ontario began the operation of a
competitive, bid-based wholesale market for electricity in Ontario, a process
that began with legislation first enacted under the ELECTRICITY ACT in 1998.
Later in 2002, after considerable volatility and rising prices under this
bid-based wholesale market, the government of Ontario put in place price caps at
the retail level, effectively shielding eligible customers from the wholesale
price volatility. In late 2003, after a change in government in Ontario, these
retail caps were adjusted upwards to

16  TRANSCANADA CORPORATION
<Page>
be effective on April 1, 2004, to better reflect the real cost of electricity.
These caps do not directly affect the wholesale market in which TransCanada is
primarily focused through its interests in Ontario power generation assets. More
recently, however, the government of Ontario has suggested it is considering
further changes to the structure and operations of the Ontario electricity
market and the legislation that governs it. It is possible that future
legislative changes may have an impact on TransCanada's Ontario operations. In
1998 and 1999, respectively, the FERC began operations of competitive, bid-based
wholesale power markets in New England and New York. In 2003, New England
adopted a reformed wholesale market, in line with the FERC's long-term vision
for a Standard Market Design.

COMPETITION IN POWER

TransCanada's power business has operated and continues to operate in highly
competitive markets that are driven mainly by price. However, the majority of
TransCanada's power generation business, excluding Bruce Power, is underpinned
by long-term or medium-term, fixed-price contracts that are unaffected by
short-term price changes in the marketplace.

Further information about business risks in TransCanada's Power business can be
found in the MD&A under the headings "Risk Factors -- Power" and
"Power -- Business Risks".

OTHER INTERESTS

CANCARB LIMITED

TransCanada owns Cancarb Limited, a thermal carbon black manufacturing facility
located in Medicine Hat, Alberta.

TRANSCANADA TURBINES

TransCanada owns a 50 per cent interest in TransCanada Turbines Ltd., a repair
and overhaul business for aero-derivative industrial gas turbines. This business
operates primarily out of facilities in Calgary, Alberta, with offices in
Bakersfield, California; East Windsor, Connecticut; and Liverpool, England.

TRANSCANADA CALIBRATIONS

TransCanada owns an 80 per cent interest in TransCanada Calibrations Ltd., a gas
meter calibration business certified by Measurement Canada, located at Ile des
Chenes, Manitoba.

DISCONTINUED OPERATIONS

Between 1999 and 2002, TransCanada continued to focus on natural gas
transmission and power generation. During that time, TransCanada sold
substantially all of its assets in international, midstream, and oil and gas
marketing businesses that were identified for disposition. For further
information about Discontinued Operations please refer to Note 17 of
TransCanada's 2003 Audited Consolidated Financial Statements.

GAS MARKETING AND TRADING

TransCanada's Board of Directors ("BOARD") approved a plan in July 2001 to
dispose of TransCanada's gas marketing business and TransCanada's exit from gas
marketing was substantially completed by December 31, 2001. TCPL remains
contingently liable for certain residual obligations.

INTERNATIONAL

In December 1999, TransCanada announced its intention to exit from all of its
international operations and during 2000 and 2001, sold the majority of its
international businesses and assets. TransCanada's remaining material
international investments are described in the following section and will be
accounted for as part of

                                                     TRANSCANADA CORPORATION  17
<Page>
continuing operations as of Year End due to the length of time it has taken
TransCanada to dispose of these assets:

TransCanada holds:

    - a 30 per cent interest in Gasoducto del Pacifico ("GAS PACIFICO"), a
      540 kilometre natural gas pipeline from Argentina to Concepcion, Chile;

    - a 30 per cent interest in INNERGY Holdings S.A., an industrial natural gas
      transportation and marketing company operating in the area of Concepcion,
      Chile, which transports gas on the Gas Pacifico system; and

    - an indirect ten per cent net interest in PT Paiton Energy Company, which
      owns a power project consisting of two 615-megawatt coal-fired power units
      located in Indonesia.

REGULATION IN INTERNATIONAL

The majority of countries in which TransCanada continues to have business
interests have various government entities in charge of drafting and
implementing the policies and regulations with respect to exploration,
production, transportation, refining, processing and distribution of
hydrocarbons, as well as all other activities related to the energy sector.

COMPETITION IN INTERNATIONAL

TransCanada's international businesses are conducted in a highly competitive
environment, comprised of major energy companies and consortia with years of
international experience and established relationships. Projects were generally
awarded by way of international tender.

TransCanada's international investments are subject to a number of risks unique
to international business. Such risks are mitigated by insurance policies,
participation of local and foreign partners, prudent commercial structuring and
other measures.

For additional information about international business risks, please see "Risk
Factors -- International", below.

MIDSTREAM

In 2000 and 2001, TransCanada sold substantially all of its portfolio of natural
gas gathering, processing, straddle plant and extraction assets in western
Canada.

In January of 2003, TransCanada sold its last remaining midstream asset, the
Harmattan gas plant located near Didsbury, Alberta, thus concluding
TransCanada's involvement in midstream activities.

                         HEALTH, SAFETY AND ENVIRONMENT

TransCanada is committed to providing a safe and healthy environment for its
employees and the public, and to the protection of the environment. Health,
safety and environment ("HS&E") is a priority in all of TransCanada's
operations. The HS&E Committee of the Board monitors compliance with the
TransCanada HS&E corporate policy through regular reporting by TransCanada's
department of Community, Safety & Environment. TransCanada's senior executives
are also committed to ensuring TransCanada is in compliance with its policies
and is an industry leader. Senior executives are regularly advised of all
important operational issues and initiatives relating to HS&E.

TransCanada has an HS&E management system modeled after ISO 14001 elements to
facilitate the focus of resources on the areas of greatest risk to the
organization's business activities relating to HS&E. It highlights opportunities
for improvement, enables TransCanada to work towards defined HS&E expectations
and objectives, and provides a competitive business advantage. HS&E audits,
management system assessments and planned inspections are used to assess both
the effectiveness of implementation of HS&E programs, processes and procedures,
and TransCanada's compliance with regulatory requirements.

18  TRANSCANADA CORPORATION
<Page>
TransCanada employs full-time staff dedicated to HS&E matters, and incorporates
HS&E policies and principles into the planning, development, construction and
operation of all its projects. Environmental protection requirements have not
had a material impact on the capital expenditures of TransCanada to date;
however there can be no assurance that such requirements will not have a
material impact on TransCanada's financial or operating results in future years.
Such requirements can be dependent on a variety of factors including the
regulatory environment in which TransCanada operates.

CLIMATE CHANGE

Climate change is a strategic issue for TransCanada, particularly in light of
the Canadian government's ratification of the Kyoto Protocol in December 2002.
TransCanada has had a comprehensive climate change strategy in place since 1999,
which includes five key areas of activity:

    - Participation in policy forums;

    - Direct emissions reduction programs;

    - Long-term technology development;

    - Emissions offset analysis; and

    - Pursuit of business opportunities.

Activities in each of these areas occurred in 2003 and will continue in 2004.

TransCanada received a fifth consecutive gold level reporting status for its
2003 Voluntary Challenge and Registry ("VCR") report. To achieve gold level
status, VCR reports are rated in several categories. Only 12 per cent of the
submissions to the registry have received gold level reporting recognition.

The Kyoto Protocol, ratified by the Canadian Federal Government in
December 2002, requires Canada to reduce its greenhouse gas emissions
significantly. The Canadian government is currently developing the policies
relating to how it intends to meet these reduction targets, and until it is
completed, TransCanada cannot predict the degree to which it will be affected.

                        PATENTS, LICENCES AND TRADEMARKS

TransCanada is the beneficial owner and, in some cases, the licensee of a number
of trademarks, patents and licenses. While these trademarks, patents and
licenses constitute valuable assets, TransCanada does not regard any single
trademark, patent or license as being material to its operations as a whole.

                               LEGAL PROCEEDINGS

TransCanada is subject to various legal proceedings and actions arising in the
normal course of business. For further information, refer to Note 16 of
TransCanada's 2003 Audited Consolidated Financial Statements.

                                  RISK FACTORS

A number of factors, including but not limited to those discussed in this
section, could cause actual results or events to differ materially from current
expectations.

TransCanada's businesses are highly complex and are dispersed over tens of
thousands of square kilometres, often in remote locations. Pipeline and power
facilities are subject to operational risks, including mechanical failure,
physical degradation, operator error, manufacturer defects, labour disputes,
terrorism, failure of supply, catastrophic events and natural disasters. The
occurrence or continuation of such events could increase TransCanada's costs and
reduce its ability to transport natural gas or generate power.

GAS TRANSMISSION

The Canadian Mainline, the Alberta System, the BC System and the Foothills
System transport natural gas from the WCSB. Continuing use of these systems is
dependent on a number of factors including the level of exploration and
development within the basin, the price of and demand for natural gas, the
ability of natural gas

                                                     TRANSCANADA CORPORATION  19
<Page>
producers to deliver natural gas to the various pipeline systems, the
development of northern natural gas reserves, and the regulatory environment for
producers, transporters and consumers of natural gas.

Further information about competition risks in TransCanada's natural gas
transmission business can be found under the heading "Business of
TransCanada -- Gas Transmission -- Competition in Transmission" above and in the
MD&A under the headings "Gas Transmission -- Wholly-Owned Pipelines -- Business
Risks" and "Other Gas Transmission -- Business Risks".

POWER

TransCanada's power business and investments rely on feed stocks of natural gas,
biomass, water, coal and uranium. Failure to obtain adequate supplies of feed
stocks could affect TransCanada's ability to generate electricity and fulfill
its supply obligations, and changes in prices of feed stocks could affect
TransCanada's financial results. Although TransCanada takes appropriate actions
to mitigate most of these risks, there can be no assurance that such actions
will be adequate in all circumstances.

TransCanada does not operate the Bruce Power facility, the ManChief Power Plant
or the assets underlying the Sundance A or Sundance B power purchase
arrangements. Failure by the operators of these facilities to operate at the
cost or in the manner projected by TransCanada could negatively affect
TransCanada's financial position.

TransCanada does not own any of the power transmission lines over which its
electricity is transmitted and delivered. Any disruption in transmission could
affect TransCanada's ability to supply electricity and could have an adverse
impact on TransCanada's financial results.

Further information about competition risks in TransCanada's power business can
be found under the headings "Business of TransCanada -- Power -- Competition in
Power" above and in the MD&A under the heading "Power -- Business Risks".

INTERNATIONAL

TransCanada's international investments are subject to a number of risks unique
to international business. These risks include exchange controls and fluctuation
of the local currency, political risk, community actions, changes in laws, price
control, the availability and quality of local labour skills, and labour unrest,
among others. Such risks are mitigated by insurance policies, participation of
local and foreign partners, prudent commercial structuring and other measures.

CORPORATE

TransCanada carries on its businesses with numerous counterparties with a wide
range of creditworthiness. While processes are followed to address the
creditworthiness of certain of these counterparties, the failure of any
counterparty to meet its financial obligations could have an impact on
TransCanada's financial position. Such failure could result from a number of
factors beyond TransCanada's control, including (but not limited to) fluctuating
commodity energy prices and interest rates, changes in regulatory and economic
environments, political instability and legally reviewable activities.

TransCanada operates in Canada and the United States and as a result, its
financial performance can be impacted by interest rates and foreign exchange
rates. TransCanada has an active hedging program in place to address interest
and foreign exchange rate risks, but there can be no assurance that such hedging
will be adequate to address the risks.

TransCanada's growth strategy is dependent upon acquiring or constructing
facilities and businesses that align with its current businesses. TransCanada
may incur costs in the pursuit of acquisitions or development of power or
natural gas transmission assets that may not be completed. Failure by
TransCanada to consummate negotiated acquisitions or new developments may result
in contractual liabilities, liquidated damages, additional costs and expenses
which could affect financial performance.

TransCanada's growth is also dependent on access to capital markets in the
United States and Canada. Although significant credit facilities are currently
available, changing market conditions could result in a materially increased
cost of capital which would reduce TransCanada's ability to pursue this growth.

20  TRANSCANADA CORPORATION
<Page>
Further information about TransCanada's risk factors and risk management can be
found in the MD&A under the headings "Gas Transmission -- Wholly-Owned
Pipelines -- Business Risks", "Gas Transmission -- Other Gas
Transmission -- Business Risks", "Power -- Power-Business Risks" and "Liquidity
and Capital Resources -- Risk Management".

                             FINANCIAL INFORMATION

THREE YEAR SELECTED CONSOLIDATED FINANCIAL INFORMATION

Selected consolidated financial information for the years ended December 31,
2003, 2002 and 2001 is found in the MD&A under the heading "Selected Three Year
Consolidated Financial Data".

For a discussion on the factors affecting the comparability of the financial
data, including discontinued operations, refer to Notes 1 and 17 of
TransCanada's 2003 Audited Consolidated Financial Statements.

DIVIDENDS

TransCanada has no formal dividend policy. The Board annually reviews the
financial performance of TransCanada and makes a determination of the
appropriate level of dividend to be declared in the following year. Currently,
TransCanada's ability to declare and pay dividends on its common shares is
dependent on TCPL's ability to declare dividends on its common shares which are
all held by TransCanada. Provisions of various trust indentures and credit
arrangements to which TCPL is a party, restrict TCPL's ability to declare and
pay dividends on its common shares under certain circumstances and if such
restrictions arise, they may have an impact on TransCanada's ability to declare
and pay dividends. At Year End, such provisions did not restrict or alter
TransCanada's ability to declare or pay dividends.

                             MARKET FOR SECURITIES

TransCanada's common shares are listed on the Toronto Stock Exchange and the
New York Stock Exchange.

TCPL's Cumulative Redeemable First Preferred Shares, Series U and Series Y are
listed on the Toronto Stock Exchange.

TCPL's 8.25% preferred securities due 2047, are listed on the New York Stock
Exchange.

TCPL's 16.50% First Mortgage Pipe Line Bonds due 2007, are listed on the London
Stock Exchange.

NGTL's 7.875% debentures due April 1, 2023, are listed on the New York Stock
Exchange.

                             DIRECTORS AND OFFICERS

As of February 24, 2004, the directors and officers of TransCanada as a group
beneficially owned, directly or indirectly, or exercised control or direction
over, 611,057 common shares of TransCanada (and none of TCPL as all the common
shares of TCPL were exchanged by common shareholders for common shares in
TransCanada) and 29,340 units of Power LP, which constitutes less than one
per cent of TransCanada's common shares and less than one per cent of the voting
securities of any of its subsidiaries or affiliates. TransCanada collects this
information from its directors and officers but otherwise has no direct
knowledge of individual holdings of its securities. Further information as to
securities beneficially owned, or over which control or direction is exercised,
is provided in TransCanada's Management Proxy Circular dated February 24, 2004
("PROXY CIRCULAR") under the heading "Business To Be Transacted at the
Meeting -- Election of Directors". See also "Additional Information" in
this AIF.

                                                     TRANSCANADA CORPORATION  21
<Page>
DIRECTORS

Set forth below are the names of the twelve directors who served on
TransCanada's Board at Year End, together with their municipalities of
residence, all positions and offices held by them with TransCanada and its
significant affiliates, their principal occupations or employment during the
past five years and the year from which each director has continually served as
a director of TCPL and since the arrangement with both TransCanada and TCPL.
Current positions and offices held with TransCanada are also held by such person
at TCPL.

<Table>
<Caption>
NAME                                PRINCIPAL OCCUPATION DURING THE FIVE PRECEDING YEARS  DIRECTOR SINCE
----                                ----------------------------------------------------  ---------------
<S>                                 <C>                                                   <C>
Douglas D. Baldwin, P. Eng.         Chairman, Talisman Energy Inc., (oil and gas) since        1999
Calgary, Alberta                    May 2003. President and Chief Executive Officer,
                                    TCPL from August 1999 to April 2001. Director,
                                    Calgary Airport Authority, Citadel Group of Funds,
                                    Resolute Energy Inc. and UTS Energy Corporation.
                                    Member, Board of Governors, University of Calgary.

Wendy K. Dobson                     Professor, Rotman School of Management and Director,       1992
Uxbridge, Ontario                   Institute for International Business, University of
                                    Toronto (education). Director, MDS Inc., The
                                    Toronto-Dominion Bank and Vice Chair, Canadian
                                    Public Accountability Board.

The Hon. Paule Gauthier,            Senior Partner, Desjardins Ducharme Stein Monast           2002
P.C., O.C., O.Q., Q.C.              (law firm). Director, Royal Bank of Canada, The
Quebec, Quebec                      Royal Trust Corporation of Canada, The Royal Trust
                                    Company, Rothmans Inc. and Metro Inc. Chair,
                                    Security Intelligence Review Committee. President,
                                    Fondation de la Maison Michel Sarrazin and
                                    President, Institut Quebecois des Hautes Etudes
                                    Internationales, Laval University.

Richard F. Haskayne,                Chairman of the Board, TransCanada and TCPL. Prior         1998
O.C., F.C.A.                        to February 19, 2003, Chairman, Fording Inc. (coal    (NOVA, 1991)(1)
Calgary, Alberta                    and wolastonite). Director, EnCana Corporation and
                                    Weyerhaeuser Company.

Kerry L. Hawkins                    President, Cargill Limited (grain handlers,                1996
Winnipeg, Manitoba                  merchants, transporters, processors of agricultural
                                    products and gas marketers). Director, NOVA
                                    Chemicals Corporation, Shell Canada Limited and
                                    Hudson's Bay Company.

S. Barry Jackson                    Chairman, Resolute Energy Inc. (oil and gas) since         2002
Calgary, Alberta                    2002 and Chairman, Deer Creek Energy Limited (oil
                                    and gas) since 2001. President and Chief Executive
                                    Officer, Crestar Energy Inc. (oil and gas) from 1993
                                    to 2000. Director, Nexen Inc.
</Table>

22  TRANSCANADA CORPORATION
<Page>

<Table>
<Caption>
NAME                                PRINCIPAL OCCUPATION DURING THE FIVE PRECEDING YEARS  DIRECTOR SINCE
----                                ----------------------------------------------------  ---------------
<S>                                 <C>                                                   <C>
Harold N. Kvisle, P. Eng.           President and Chief Executive Officer, TransCanada         2001
Calgary, Alberta                    since May 2003 and TCPL since May 2001. Executive
                                    Vice-President, Trading and Business Development,
                                    TCPL from June 2000 to April 2001. Senior
                                    Vice-President, Trading and Business Development,
                                    TCPL from April 2000 to June 2000. Senior
                                    Vice-President and President, Energy Operations,
                                    TCPL, from September 1999 to April 2000. Prior to
                                    September 1999, President, Fletcher Challenge Energy
                                    Canada Inc. (oil and gas). Director, Norske Skog
                                    Canada Limited, PrimeWest Energy Inc. and
                                    TransCanada Power, L.P.. Chair, Interstate National
                                    Gas Association of America and Chair, Mount Royal
                                    College.

David P. O'Brien(2)                 Chairman, EnCana Corporation (oil and gas) since           2001
Calgary, Alberta                    April 2002. Chairman and Chief Executive Officer,
                                    PanCanadian Energy Corporation (oil and gas) from
                                    October 2001 to April 2002. Chairman, President and
                                    Chief Executive Officer, Canadian Pacific Limited
                                    (transportation, energy and hotels) from May 1996 to
                                    October 2001. Director, Royal Bank of Canada,
                                    Fairmont Hotels & Resorts Inc., Inco Limited,
                                    Molson Inc., Profico Energy Management Ltd. and The
                                    E & P Limited Partnership.

James R. Paul                       Chairman, James and Associates (private investment         1996
Kingwood, Texas                     firm). Member of the Advisory Board, AMEC PLC.

Harry G. Schaefer, F.C.A.           President, Schaefer & Associates (business advisory        1987
Calgary, Alberta                    services). Vice-Chairman of the Board, TransCanada
                                    and TCPL. Chairman, Crestar Energy Inc. (oil and
                                    gas) from May 1996 to November 2000. Director,
                                    Agrium Inc. and Fording Canadian Coal Trust.
                                    Chairman, Alberta Chapter, Institute of Corporate
                                    Directors and Chair, The Mount Royal College
                                    Foundation.

W. Thomas Stephens                  Corporate Director. Chief Executive Officer,               1999
Greenwood Village, Colorado         MacMillan Bloedel Limited (forest products) from
                                    October 1997 to October 1999. Director, Xcel
                                    Energy Inc., Norske Skog Canada Limited, Qwest
                                    Communications International Inc. and The Putnam
                                    Funds.

Joseph D. Thompson,                 Chairman, PCL Construction Group Inc. (general             1995
P. Eng.                             construction contractors). Director, NOVA Chemicals
Edmonton, Alberta                   Corporation.
</Table>

NOTES:

(1) NOVA Corporation merged with TCPL on July 2, 1998.

(2) Mr. O'Brien was a director with Air Canada on April 1, 2003 when Air Canada
    filed for protection under the COMPANIES' CREDITORS ARRANGEMENT ACT
    (Canada). Mr. O'Brien resigned as a director from Air Canada in
    November 2003.

Each director holds office until the next annual meeting or until his or her
successor is earlier elected or appointed.

                                                     TRANSCANADA CORPORATION  23
<Page>
TransCanada has four Board committees: the Audit Committee, the Governance
Committee, the Health, Safety and Environment Committee and the Human Resources
Committee. The members of each of these committees are identified below:

<Table>
<S>       <C>                                   <C>       <C>
AUDIT COMMITTEE                                 GOVERNANCE COMMITTEE

Chair:    H.G. Schaefer                         Chair:    W.K. Dobson
Members:  P. Gauthier                           Members:  D.D. Baldwin
          K.L. Hawkins                                    D.P. O'Brien
          S.B. Jackson                                    J.R. Paul
          J.R. Paul                                       H.G. Schaefer

HEALTH, SAFETY & ENVIRONMENT COMMITTEE          HUMAN RESOURCES COMMITTEE

Chair:    D.D. Baldwin                          Chair:    K.L. Hawkins
Members:  P. Gauthier                           Members:  W.K. Dobson
          S.B. Jackson                                    D.P. O'Brien
          W.T. Stephens                                   W.T. Stephens
          J.D. Thompson                                   J.D. Thompson
</Table>

Further information about TransCanada's Board committees and corporate
governance can be found in the Proxy Circular under the heading "Compensation
and Other Information -- Corporate Governance".

OFFICERS

All of the executive officers and corporate officers of TransCanada reside in
Calgary, Alberta. References to positions and offices with TransCanada prior to
May 15, 2003 are references to the positions and offices held with TCPL. Current
positions and offices held with TransCanada are also held by such person at
TCPL. As of February 24, 2004, the officers of TransCanada, their present
positions within TransCanada and their principal occupations during the five
preceding years are as follows:

EXECUTIVE OFFICERS

<Table>
<Caption>
NAME                                      PRESENT POSITION HELD         PRINCIPAL OCCUPATION DURING THE FIVE PRECEDING YEARS
----                                ----------------------------------  ----------------------------------------------------
<S>                                 <C>                                 <C>
Harold N. Kvisle                    President and Chief Executive       Executive Vice-President, Trading and Business
                                    Officer                             Development, June 2000 to April 2001. Senior
                                                                        Vice-President, Trading and Business Development,
                                                                        April 2000 to June 2000. Senior Vice-President and
                                                                        President, Energy Operations, September 1999 to
                                                                        April 2000. Prior to September 1999, President,
                                                                        Fletcher Challenge Energy Canada Inc. (oil
                                                                        and gas).

Albrecht W.A. Bellstedt, Q.C.(1)    Executive Vice-President, Law and   Senior Vice-President, Law and General Counsel,
                                    General Counsel                     April 2000 to June 2000. Senior Vice-President, Law
                                                                        and Administration, September 1999 to April 2000.
                                                                        Prior to September 1999, Senior Vice-President, Law
                                                                        and Chief Compliance Officer.
</Table>

24  TRANSCANADA CORPORATION
<Page>

<Table>
<Caption>
NAME                                      PRESENT POSITION HELD         PRINCIPAL OCCUPATION DURING THE FIVE PRECEDING YEARS
----                                ----------------------------------  ----------------------------------------------------
<S>                                 <C>                                 <C>
Russell K. Girling                  Executive Vice-President,           Executive Vice-President and Chief Financial
                                    Corporate Development and Chief     Officer, June 2000 to March 2003. Senior
                                    Financial Officer                   Vice-President and Chief Financial Officer,
                                                                        August 1999 to June 2000. Prior to August 1999,
                                                                        Vice-President, Finance.

Dennis J. McConaghy                 Executive Vice-President, Gas       Senior Vice-President, Business Development,
                                    Development                         October 2000 to May 2001. Senior Vice-President,
                                                                        Midstream/Divestments, June 2000 to October 2000.
                                                                        Prior to June 2000 Vice-President, Corporate
                                                                        Strategy and Planning.

Alexander J. Pourbaix               Executive Vice-President, Power     Executive Vice-President, Power Development,
                                                                        May 2001 to March 2003. Senior Vice-President,
                                                                        Power Ventures, June 2000 to May 2001. Prior to
                                                                        June 2000, Vice-President, Corporate Development,
                                                                        Power Services.

Sarah E. Raiss                      Executive Vice-President,           Executive Vice-President, Human Resources and Public
                                    Corporate Services                  Sector Relations, June 2000 to January 2002. Senior
                                                                        Vice-President, Human Resources and Public Sector
                                                                        Relations, February 2000 to June 2000. Senior
                                                                        Vice-President, Human Resources, March 1999 to
                                                                        February 2000. President of S.E. Raiss Group, Inc.
                                                                        (organizational consulting) prior to March 1999.

Ronald J. Turner                    Executive Vice-President, Gas       Executive Vice-President, Operations and
                                    Transmission                        Engineering, December 2000 to March 2003. Executive
                                                                        Vice-President, International, June 2000 to December
                                                                        2000. Senior Vice-President, International,
                                                                        April 2000 to June 2000. President, International,
                                                                        August 1999 to April 2000 and Senior Vice-President,
                                                                        July 1998 to April 2000.

Donald M. Wishart                   Executive Vice-President,           Senior Vice-President, Field Operations, June 2000
                                    Operations and Engineering          to March 2003. August 1999 to June 2000, Senior
                                                                        Vice-President, Operations, Transmission Division.
                                                                        Prior to August 1999, Senior Vice-President, Project
                                                                        Development, TransCanada International Ltd.
</Table>

NOTE:

(1) Mr. Bellstedt, who serves as a trustee of Atlas Cold Storage Income Trust,
    is subject to an Ontario Securities Commission cease trade order issued in
    respect of all insiders of Atlas Cold Storage Income Trust.

                                                     TRANSCANADA CORPORATION  25
<Page>
CORPORATE OFFICERS

<Table>
<Caption>
NAME                                      PRESENT POSITION HELD         PRINCIPAL OCCUPATION DURING THE FIVE PRECEDING YEARS
----                                ----------------------------------  ----------------------------------------------------
<S>                                 <C>                                 <C>
Ronald L. Cook                      Vice-President, Taxation            Prior to April 2002, Director, Taxation.

Rhondda E.S. Grant                  Vice-President and Corporate        Prior to September 1999, Corporate Secretary and
                                    Secretary                           Associate General Counsel, Corporate.

Lee G. Hobbs                        Vice-President and Controller       Director, Accounting, May 1999 to July 2001. Prior
                                                                        to May 1999, Chief Financial Officer, Snow Leopard
                                                                        Resources Inc. (oil and gas).

Garry E. Lamb                       Vice-President, Risk Management     Vice-President, Audit and Risk Management,
                                                                        June 2000 to October 2001. Vice-President, Risk
                                                                        Management, February 2000 to June 2000.
                                                                        Vice-President, Risk Identification and
                                                                        Quantification, September 1999 to February 2000.
                                                                        Prior to September 1999, General Manager,
                                                                        Counterparty Risk.

Donald R. Marchand                  Vice-President, Finance and         Prior to September 1999, Director, Finance.
                                    Treasurer
</Table>

                              CORPORATE GOVERNANCE

The Board and members of TransCanada's management are committed to the highest
standards of corporate governance. TransCanada is subject to a variety of
corporate governance guidelines and requirements enacted by the Toronto Stock
Exchange ("TSX"), the Canadian Securities Administrators ("CSA"), the New York
Stock Exchange ("NYSE"), and by the U.S. Securities and Exchange Commission
("SEC") under the United States SARBANES-OXLEY ACT of 2002. TransCanada's
corporate governance practices comply with the TSX Company Corporate Governance
Guidelines, governance rules of the NYSE applicable to foreign issuers and
applicable requirements of the CSA and SEC. TransCanada is also in substantial
early compliance with the CSA Multilateral Instrument 52-110 pertaining to audit
committees that comes into force on March 30, 2004 and becomes applicable to
TransCanada in 2005, and with proposed corporate governance guidelines released
for comment by the CSA on January 16, 2004 which are expected to be in force in
2005. Full disclosure of TransCanada's corporate governance practices are set
out in the Proxy Circular. The following corporate governance disclosure
documents are attached to this AIF for reference:

Schedule "B" -- Corporate Governance Guidelines

Schedule "C" -- Code of Business Ethics for Employees

Schedule "D" -- Code of Business Ethics for Directors

Schedule "E" -- Code of Business Ethics for the President & Chief Executive
Officer, Chief Financial Officer and Controller

Schedule "F" -- Charter of the Audit Committee

Schedule "G" -- Charter of the Governance Committee

Schedule "H" -- Charter of the Health, Safety & Environment Committee

Schedule "I" -- Charter of the Human Resources Committee

26  TRANSCANADA CORPORATION
<Page>
                             ADDITIONAL INFORMATION

1.  Additional information including compensation of directors and officers,
    indebtedness of directors and officers, principal holders of TransCanada's
    securities, options to purchase securities and interests of insiders in
    material transactions (all where applicable), is contained in the Proxy
    Circular, which can be obtained upon request from the Corporate Secretary of
    TransCanada.

2.  Additional financial information is provided in TransCanada's 2003 Audited
    Consolidated Financial Statements, contained in the Annual Report.

3.  TransCanada will provide to any person or company upon request to the
    Corporate Secretary of TransCanada:

    (a) when the securities of TransCanada are in the course of a distribution
       under a preliminary short form prospectus or a short form prospectus:

        (i) one copy of TransCanada's latest Annual Information Form, together
            with one copy of any document, or the pertinent pages of any
            document, incorporated by reference in the Annual Information Form;

        (ii) one copy of the comparative financial statements of TransCanada for
             TransCanada's most recently completed financial year for which
             financial statements have been filed, together with the
             accompanying report of the auditor and one copy of the most recent
             interim financial statements of TransCanada that have been filed,
             if any, for any period after the end of its most recently completed
             financial year;

       (iii) one copy of the information circular of TransCanada in respect of
             its most recent annual meeting of shareholders of TransCanada that
             involved the election of directors or one copy of any annual filing
             prepared instead of that information circular, as appropriate; and

        (iv) one copy of any other documents incorporated by reference into the
             preliminary short form prospectus or the short form prospectus and
             are not required to be provided under (i), (ii) or (iii) above; or

    (b) at any other time, one copy of any other document referred to in
       paragraphs (3)(a)(i), (ii) and (iii) above, provided that TransCanada may
       require the payment of a reasonable charge from if the request is made by
       a person or company who is not a security holder of TransCanada.

4.  Additional information, including director's and officer's remuneration and
    indebtedness, principal holders of TransCanada's securities, options to
    purchase securities and interests of insiders in material transactions, if
    applicable, is contained in TransCanada's management proxy circular for its
    most recent annual meeting of shareholders that involved the election of
    directors, and additional information is provided in TransCanada's
    comparative financial statements for its most recently completed financial
    year.

                                                     TRANSCANADA CORPORATION  27
<Page>
                                  SCHEDULE "A"

EXCHANGE RATE OF THE CANADIAN DOLLAR

All dollar amounts are in Canadian dollars, except where otherwise indicated.
The following table shows the high and low spot rates, the 90 day average noon
rates and the year-end noon spot rates for the United States dollar for the past
five years, each expressed in Canadian dollars, as reported by the Bank of
Canada.

<Table>
<Caption>
                                                                             AS AT DECEMBER 31
                                                      ----------------------------------------------------------------
                                                        2003          2002          2001         2000*          1999
                                                      --------      --------      --------      --------      --------
<S>                                                   <C>           <C>           <C>           <C>           <C>
High................................................   1.2970        1.5801        1.5975        1.5035        1.4551
Low.................................................   1.2839        1.5768        1.5899        1.4946        1.4420
90 Day Average Noon Rate............................   1.2975        1.5853        1.5934        1.4976        1.4402
Year-End Noon.......................................   1.2924        1.5796        1.5926        1.5002        1.4433
</Table>

*  Exchange rates for 2000 are as at December 29, 2000.

On February 24, 2004, the noon rate for the United States dollar as reported by
the Bank of Canada was US $1.00 = Cdn. $1.3280.

METRIC CONVERSION TABLE

The conversion factors set out below are approximate factors. To convert from
Metric to Imperial multiply by the factor indicated. To convert from Imperial to
Metric divide by the factor indicated.

<Table>
<Caption>
METRIC                 IMPERIAL                                                                  FACTOR
------                 --------                                                                  ------
<S>                    <C>                                      <C>
Kilometres             Miles                                                                       0.62
Millimetres            Inches                                                                      0.04
Gigajoules             Million British thermal units                                               0.95
                       ("MMBTU")
Cubic metres*          Cubic feet                                                                  35.3
Kilopascals            Pounds per square inch ("PSI")                                              0.15
Degrees Celsius        Degrees Fahrenheit                          to convert to Fahrenheit multiply by
                                                                              1.8, then add 32 degrees;
                                                                         to convert to Celsius subtract
                                                                         32 degrees, then divide by 1.8
</Table>

*  The conversion is based on natural gas at a base pressure of
   101.325 kilopascals and at a base temperature of 15(o) Celsius.

28  TRANSCANADA CORPORATION
<Page>
                                  SCHEDULE "B"

--------------------------------------------------------------------------------

                            TRANSCANADA CORPORATION

                        CORPORATE GOVERNANCE GUIDELINES

                                                                   FEBRUARY 2004

--------------------------------------------------------------------------------

                                                     TRANSCANADA CORPORATION  29
<Page>
                               TABLE OF CONTENTS

<Table>
<Caption>
                                                                              PAGE
                                                                            --------
<S>   <C>     <C>                                                           <C>
A.    INTRODUCTION........................................................     31

B.    BOARD ORGANIZATION AND MEMBERSHIP...................................     31
          1.  Chair of the Board..........................................     31
          2.  Non-Executive Chair.........................................     31
          3.  Lead Director Concept.......................................     31
          4.  Board Size..................................................     31
          5.  Inside and Outside Directors................................     32
          6.  "Independence" of Outside Directors.........................     32
          7.  Primary Employment Status Change............................     32
          8.  Officers' Board Membership..................................     32
          9.  Criteria for Board Membership...............................     32
         10.  Selection of New Director Candidates........................     32
         11.  New Director Orientation....................................     33
         12.  Fixed Terms for Membership on the Board.....................     33
         13.  Retirement Age..............................................     33
         14.  Board Compensation..........................................     33
         15.  Share Ownership by Directors................................     33

C.    BOARD MEETINGS AND MATERIALS........................................     33
          1.  Board Meeting Agendas.......................................     33
          2.  Meeting Materials Distributed in Advance....................     33
          3.  Presentations...............................................     34
          4.  Non-Directors at Board Meetings.............................     34
          5.  Outside Directors...........................................     34

D.    COMMITTEE ORGANIZATION AND MEETINGS.................................     34
          1.  Board Committees............................................     34
          2.  Outside, Unrelated and Independent Directors................     34
          3.  Assignment and Rotation of Committee Members................     34
          4.  Committee Meetings..........................................     34
          5.  Committee Agendas...........................................     34

E.    BOARD AND MANAGEMENT RESPONSIBILITIES...............................     34
          1.  Board Relationship with Management..........................     34
          2.  Corporate Strategy..........................................     35
          3.  Limits to Management Authority..............................     35
          4.  Formal Evaluation of the President and Chief Executive           35
              Officer.....................................................
          5.  Succession Planning and Management Development..............     35
          6.  Principal Risks.............................................     35
          7.  Internal Controls and Management Information Systems........     35
          8.  Board Communications Policy.................................     36
          9.  Outside Advisors for Individual Directors...................     36
         10.  Assessing the Performance of the Board, Committees and           36
              Individual Directors........................................
</Table>

30  TRANSCANADA CORPORATION
<Page>
                            TRANSCANADA CORPORATION
                                (THE "COMPANY")
                        CORPORATE GOVERNANCE GUIDELINES

A.  INTRODUCTION

    The board of directors of the Company and its management are committed to
    maintaining a high standard of corporate governance. This commitment
    includes adherence to the definition of corporate governance included in the
    1994 Toronto Stock Exchange Committee Report on Corporate Governance in
    Canada. The report defined corporate governance as meaning "the process and
    structure used to direct and manage the business and affairs of a company
    with the objective of enhancing shareholder value, which includes ensuring
    the financial viability of the business. The process and structure define
    the division of power and establish mechanisms for achieving accountability
    among shareholders, the board of directors and management. The direction and
    management of the business should take into account the impact on other
    stakeholders such as employees, customers, suppliers and communities".

    The Company is subject to a variety of corporate governance guidelines and
    requirements enacted by the Toronto Stock Exchange ("TSX"), the Canadian
    Securities Administrators ("CSA"), the New York Stock Exchange ("NYSE") and
    by the U.S. Securities and Exchange Commission ("SEC") under its rules and
    those mandated by the United States Sarbanes-Oxley Act of 2002 ("SOX"). The
    Company's corporate governance practices comply with the TSX Company Manual
    Corporate Governance Guidelines, governance rules of the NYSE applicable to
    foreign issuers and applicable requirements of the CSA and the SEC. The
    Company is also in substantial compliance with the CSA's Multilateral
    Instrument pertaining to audit committees that comes into force on
    March 30, 2004 and is applicable in 2005, and with the proposed corporate
    governance guidelines released for comment by the CSA on January 16, 2004
    and which are expected to be in force in 2005.

    The board has the responsibility for the overall stewardship of the Company,
    establishing the overall policies and standards for the Company in the
    operation of its businesses, and reviewing and approving the strategic
    plans. In addition, the board monitors and assesses overall performance and
    progress in meeting the Company's goals. Day to day management is the
    responsibility of the president and chief executive officer and senior
    management. To this end, the board has adopted the following guidelines to
    assist it in its corporate governance responsibilities.

B.  BOARD ORGANIZATION AND MEMBERSHIP

     1. CHAIR OF THE BOARD

       The board has currently determined to separate the positions of chairman
       of the board ("chair") and president and chief executive officer.

     2. NON-EXECUTIVE CHAIR

       The board has determined the chair of the Company shall serve in a
       non-executive capacity and shall be appointed by the board based on the
       recommendations of the Governance Committee, the committee of the board
       that has been delegated the responsibility to assess candidates for the
       position.

     3. LEAD DIRECTOR CONCEPT

       The board has adopted a policy that it have an independent director
       assume the responsibility of chairing scheduled meetings of outside
       directors or other responsibilities which the outside directors as a
       whole might designate from time to time. This will be the Chairman, if an
       outside director, or the chair of the Governance Committee, if not.

     4. BOARD SIZE

       Although the maximum number of directors permitted by TransCanada's
       Articles is 20, the board has determined that it is in the best interests
       of the Company to maintain a smaller board, in the range of

                                                     TRANSCANADA CORPORATION  31
<Page>
       12 to 14. It is the board's belief that this range is currently
       sufficient to provide a diversity of expertise and opinions and allow
       effective committee organization, yet small enough for efficient meetings
       and decision-making.

       The Governance Committee is mandated to review the size of the board from
       time to time and recommend changes in size to the board when appropriate.
       The board has the ability to increase or decrease its size within limits
       defined by Articles of the Company.

     5. INSIDE AND OUTSIDE DIRECTORS

       The board believes that, as a matter of policy, there should be a
       majority of outside, unrelated and independent directors on the Company's
       board. To this end, the board has determined the number of officers or
       senior managers of the Company or its subsidiaries who may serve as
       directors at any one time shall be limited to a maximum of three.

       On matters of corporate governance, decisions will be made by the
       unrelated directors.

     6. "INDEPENDENCE" OF OUTSIDE DIRECTORS

       The Governance Committee undertakes an annual review to determine the
       existence of any relationships with the Company and to ensure the
       majority of directors are independent and unrelated to the Company, that
       all Committee members are independent and, where any relationships exist,
       the director is acting appropriately. The board annually determines the
       independent and unrelated status of each director, based on the
       Governance Committee's recommendations.

     7. PRIMARY EMPLOYMENT STATUS CHANGE

       The board has adopted a policy that requires any director whose primary
       employment status changes to notify the chair of the Governance
       Committee. A director in such circumstances is also deemed to have
       submitted his or her resignation from the Board. The Governance Committee
       shall in turn advise the board and provide recommendations on the
       member's continued service to the Company as a director. It is not
       intended that directors who retire or whose professional positions change
       should necessarily leave the board. The Governance Committee has the
       responsibility to assess the continued appropriateness of board
       membership under such circumstances.

     8. OFFICERS' BOARD MEMBERSHIP

       The board has determined that management members of the board shall not
       automatically stand for re-election after retirement or resignation from
       the Company. Any former officer of the Company serving on the board will
       be considered to be an inside director for purposes of corporate
       governance until such time as the applicable regulatory cooling off
       periods have been met and the outside directors determine that sufficient
       distance has been established from the officer's former executive duties
       to make the officer independent and unrelated to the Company.

     9. CRITERIA FOR BOARD MEMBERSHIP

       The Governance Committee reviews each year the general and specific
       criteria applicable to candidates to be considered for nomination to the
       board. The objective of this review is to maintain the composition of the
       board in a way that provides the best mix of skills and experience to
       guide the long-term strategy and ongoing business operations of the
       Company. This review takes into account the desirability of maintaining a
       reasonable diversity of backgrounds, skills and experience and personal
       characteristics such as age, gender, geographic residence, etc. among the
       directors along with the key common qualities required for effective
       board participation.

    10. SELECTION OF NEW DIRECTOR CANDIDATES

       The board is responsible for identifying suitable candidates to be
       recommended for election to the board by the shareholders. The Governance
       Committee has the responsibility for assessing potential nominees,
       screening their qualifications against the current skill and experience
       requirements of the board and making recommendations in this regard to
       the board. Directors are encouraged to identify potential candidates. The
       chair and president and chief executive officer are consulted and have
       input

32  TRANSCANADA CORPORATION
<Page>
       into the process. An invitation to stand as a nominee for election to the
       board will normally be made to a candidate by the board through the chair
       or the chair's delegate.

    11. NEW DIRECTOR ORIENTATION

       New directors are provided with an orientation and education program that
       includes written information about the duties and obligations of
       directors, the business and operations of the Company, documents from
       recent board meetings, and opportunities for meetings and discussion with
       senior management and other directors. The details of the orientation of
       each new director are tailored to that director's individual needs and
       areas of interest.

    12. FIXED TERMS FOR MEMBERSHIP ON THE BOARD

       The board does not believe it should establish a fixed term for
       membership on the board. While fixed terms could help ensure that there
       are fresh ideas and views available to the board, they have the
       disadvantage of losing the contribution of directors who have developed,
       over a period of time, increased insight into the Company and its
       operations and who, therefore, can be expected to provide an increasing
       contribution to the board as a whole.

    13. RETIREMENT AGE

       The board reviews the mandatory retirement age for directors from time to
       time. The board has currently determined that no person shall stand for
       election or re-election to the board if he or she attains the age of
       70 years on or before the date of the annual meeting called in relation
       to the election of directors.

    14. BOARD COMPENSATION

       The Governance Committee reviews the compensation of directors on an
       annual basis, taking into account such matters as time commitment,
       responsibility and compensation provided by comparative companies. The
       Committee makes recommendations to the board for consideration when it
       believes changes in compensation are warranted.

    15. SHARE OWNERSHIP BY DIRECTORS

       The board has determined that ownership of the Company's shares by
       directors is a positive step in helping directors align their interests
       with those of the shareholders. The board has adopted a policy guideline
       requiring directors to hold at least five times the value of their annual
       board retainer in common shares of the Company. Such holdings can be
       acquired over a period of five years and can take the form of actual
       share ownership or by holding the equivalent number of units in the
       Directors' Deferred Share Unit Plan.

C.  BOARD MEETINGS AND MATERIALS

     1. BOARD MEETING AGENDAS

       The chair and the president and chief executive officer establish the
       agenda for each board meeting.

       Any board member may suggest the inclusion of items on the agenda in
       advance of the meeting.

     2. MEETING MATERIALS DISTRIBUTED IN ADVANCE

       The board has determined that information and data that are important to
       the board's understanding of business issues be distributed to the board
       before each board meeting in sufficient time to ensure adequate
       opportunity exists for members' review. Management makes every attempt to
       make this material as concise as possible while still providing the
       desired information and focusing attention on critical issues to be
       considered by the board.

                                                     TRANSCANADA CORPORATION  33
<Page>
     3. PRESENTATIONS

       As a general rule and when appropriate, presentation materials are sent
       to the board members in advance. Time is allocated at all board meetings
       to ensure that members' questions about the material can be answered.

     4. NON-DIRECTORS AT BOARD MEETINGS

       The board appreciates the value of the regular attendance at each board
       meeting of non-board members who are members of the Company's senior
       management.

       Attendance by senior management is determined by the president and chief
       executive officer with the concurrence of the chair.

       Management attendees are excused for any agenda items that are reserved
       for discussion among directors only.

     5. OUTSIDE DIRECTORS

       Directors who are not members of management meet at the end of each board
       meeting IN-CAMERA to discuss matters of interest independent of
       management.

D.  COMMITTEE ORGANIZATION AND MEETINGS

     1. BOARD COMMITTEES

       Each committee operates according to board-approved terms of reference.
       The committees are: (1) the Audit Committee; (2) the Governance
       Committee; (3) the Health, Safety and Environmental Committee; and
       (4) the Human Resources Committee.

     2. OUTSIDE, UNRELATED AND INDEPENDENT DIRECTORS

       The board believes that, as a matter of policy, each of the Committees
       should be composed entirely of independent and unrelated directors. The
       applicable requirements are addressed in the charters of each Committee.

     3. ASSIGNMENT AND ROTATION OF COMMITTEE MEMBERS

       The Governance Committee is responsible for recommending to the board the
       assignment of board members to various committees in consultation with
       the chair, the president and chief executive officer, and taking into
       account the wishes of individual board members.

       The board favours the periodic rotation of committee members and
       committee chairs. Such rotation, when recommended, will be made in a way
       that recognizes and balances the need for renewal of ideas, continuity,
       and the utilization of each director's particular expertise.

     4. COMMITTEE MEETINGS

       Committee chairs, in consultation with committee members, determine the
       frequency (consistent with the committee's terms of reference) and length
       of the meetings of the committees. Each committee reports to the board on
       the results of each meeting.

     5. COMMITTEE AGENDAS

       The chair of each committee, in consultation with the appropriate members
       of management, develops the committee's agendas. The chair of each
       committee ensures that the committee meets sufficiently often to
       discharge its delegated responsibilities.

E.  BOARD AND MANAGEMENT RESPONSIBILITIES

     1. BOARD RELATIONSHIP WITH MANAGEMENT

       The board supports and encourages the members of the Company's management
       in the performance of their duties and individual outside directors are
       encouraged to provide their counsel as needed.

34  TRANSCANADA CORPORATION
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       Management makes appropriate use of the board's skills before decisions
       are brought forward on key issues.

       Board members have complete access to management for relevant
       information. It is understood that board members will be prudent and be
       sure that this contact is not distracting to the business operation of
       the Company and that such contact, if in writing, be copied to the
       president and chief executive officer and the chair.

       The board encourages senior management to bring managers into board
       meetings from time to time to provide additional insight into the items
       being discussed. Such managers are expected to be those with growth
       potential who would benefit from their exposure to the board.

     2. CORPORATE STRATEGY

       The board believes that management is responsible for development of
       corporate strategy. It is the role of the board to review, question,
       validate and approve material changes in the strategies of the Company.

     3. LIMITS TO MANAGEMENT AUTHORITY

       The board establishes general authority guidelines that places limits on
       management's approval authority depending on the nature and size of the
       proposed transaction. These limits anticipate that some flexibility
       exists within approved budgets but otherwise must not be exceeded without
       prior board or appropriate committee approval.

     4. FORMAL EVALUATION OF THE PRESIDENT AND CHIEF EXECUTIVE OFFICER

       The Human Resources Committee conducts an annual review of the
       performance of the president and chief executive officer as measured
       against objectives established mutually in the prior year by the Human
       Resources Committee and the president and chief executive officer. The
       results of this annual review is communicated to the board's unrelated
       directors who then make an evaluation of the overall performance of the
       president and chief executive officer. This performance evaluation is
       communicated to the president and chief executive officer by the chair
       and the chair of the Human Resources Committee. The evaluation is used by
       the Human Resources Committee in its deliberations concerning the
       president and chief executive officer's annual compensation.

     5. SUCCESSION PLANNING AND MANAGEMENT DEVELOPMENT

       The board believes that succession planning and management development
       are key to the ongoing process that contributes substantially to the
       success of the Company. The president and chief executive officer
       provides a detailed annual report to the Human Resources Committee and a
       summary presentation to the board. The president and chief executive
       officer makes available to the Human Resources Committee his
       recommendation as to a successor in the event of the unexpected
       incapacity of the president and chief executive officer.

     6. PRINCIPAL RISKS

       The board is responsible for understanding the principal risks associated
       with the Company's business on an ongoing basis and it is the
       responsibility of management to assure that the board and its committees
       are kept well informed of these changing risks on a timely basis. It is
       important that the board understand and support the key risk decisions of
       management, which includes comprehending the appropriate balance between
       risks and rewards.

     7. INTERNAL CONTROLS AND MANAGEMENT INFORMATION SYSTEMS

       Fundamental to the discharge of the board's overall responsibilities is
       the existence of control systems that can in part ensure the effective
       discharge of these responsibilities. A balance has to be achieved between
       controls related to financial or other matters that give the board
       reasonable assurances that its responsibilities are discharged and, at
       the same time, avoiding the creation of an unnecessarily bureaucratic and
       costly system of control mechanisms. The confidence of the board in the
       ability and integrity of management is the paramount control mechanism.

                                                     TRANSCANADA CORPORATION  35
<Page>
       The board has delegated to the Audit Committee the responsibility for the
       oversight of internal control procedures, to determine their
       effectiveness, and to monitor compliance with the Company's policies and
       codes of business ethics. The Audit Committee reports on these matters to
       the board.

       The Audit Committee requires management to implement and maintain
       appropriate systems of internal controls and meets with the Company's
       external auditors and its director of internal audit in executive
       sessions, and with management, on at least a quarterly basis to oversee
       the effectiveness of these systems.

     8. BOARD COMMUNICATIONS POLICY

       The board, or the appropriate committee thereof, reviews the content of
       the Company's major communications to shareholders and the investing
       public, including the quarterly and annual reports, and approves the
       proxy circular, the annual information form and any prospectuses that may
       be issued. The board believes that it is the function of management to
       speak for the Company in its communications with the investment
       community, the media, customers, suppliers, employees, governments and
       the general public. It is understood that the chair or other individual
       directors may from time to time be requested by management to assist with
       such communications. If communications from stakeholders are made to the
       chair or to other individual directors, management is informed and
       consulted to determine any appropriate response.

     9. OUTSIDE ADVISORS FOR INDIVIDUAL DIRECTORS

       Occasionally individual directors may need the services of an advisor or
       expert to assist on matters involving their responsibilities as board
       members. The board has determined that any director who wishes to engage
       an outside advisor at the expense of the Company may do so.

    10. ASSESSING THE PERFORMANCE OF THE BOARD, COMMITTEES AND INDIVIDUAL
        DIRECTORS

       The Governance Committee reports to the board annually on the evaluation
       of the performance of the board, each of its committees, and that of
       individual directors, based on the results of the directors' annual
       self-assessment questionnaire. In addition, formal interviews are
       undertaken annually by the chair, based on the results of the
       questionnaire and the Company's Individual Director Terms of Reference,
       with each member of the board and with each member of the executive
       leadership of the Company. The performance of the chair is annually
       evaluated against his terms of reference by the chair of the Governance
       Committee by means of formal interviews with each of the directors.

36  TRANSCANADA CORPORATION
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                                  SCHEDULE "C"
                     CODE OF BUSINESS ETHICS FOR EMPLOYEES

Personnel (includes all regular full, part-time and temporary employees) of
TransCanada and its subsidiaries and affiliates (the "Company") represent the
Company and are expected to act in a manner that will enhance the Company's
reputation for honesty, integrity and reliability. Our Code of Business Ethics
(the "COBE") is a statement on TransCanada's Business Practices and on how we do
business. The COBE applies to all personnel of TransCanada. When you have a
question about ethics or compliance, please refer to this policy.

The COBE will not give you an answer for every situation. If after reviewing it
you have questions, please seek additional guidance. If you have any doubt about
the right thing to do, ask your supervisor, manager, or Human Resources, Law or
Internal Audit Departments. You can also call our anonymous Ethics Help-Line at
1-888-920-2042.

The following Fundamental Principles of appropriate business conduct have been
established for all personnel working for or representing the Company. They are
applicable in all countries in which the Company operates, unless the laws of
those countries require a higher standard.

FUNDAMENTAL PRINCIPLES

A.  COMPLIANCE WITH LAWS

    The Company will conduct its business in compliance with all laws,
    regulations and other legal requirements applicable wherever the Company is
    carrying on business. No personnel shall directly or indirectly give, offer
    or agree to give or offer a loan, reward, advantage or benefit of any kind
    to a foreign public official or to any person for the benefit of a foreign
    public official in contravention of the CORRUPTION OF FOREIGN PUBLIC
    OFFICIALS ACT.

B.  CONFLICT OF INTEREST

    Personnel must ensure that no conflict exists between their personal
    interests and those of the Company. Personnel should also avoid placing
    themselves in positions that may be perceived as conflicts. Some examples of
    possible conflicts include:

    - FINANCIAL INTEREST -- Personnel and their families (families including
      spouse, children or spouse equivalent residing together) shall not own,
      control or direct a material financial interest (greater than 5%) in a
      supplier, contractor, competitor, or in any business enterprise which does
      or seeks to do business with the Company.

    - OUTSIDE BUSINESS ACTIVITIES -- Personnel shall not engage in any outside
      business or activity that is detrimental to the Company. Unless approved
      by the Company or your supervisor, personnel are expected to spend their
      full time and attention performing their jobs during normal business hours
      or as contracted.

    - OUTSIDE DIRECTORSHIPS -- Personnel shall not serve as a director, officer,
      partner, consultant or any other role in unaffiliated profit-making
      organizations if that activity is detrimental to the Company.
      Directorships in unaffiliated entities require the consent of the
      personnel's immediate supervisor or contract manager, and of the
      Governance Committee of the Board of Directors in the case of an ELT
      member.

    - GIFTS AND ENTERTAINMENT -- Personnel must be prudent in offering or
      accepting gifts (including tickets to sporting, recreational or other
      events) to or from a person or entity with which the Company does or seeks
      to do business.

    - CUSTOMER AND SUPPLIER RELATIONS -- All customers, suppliers and
      independent contractors purchasing or furnishing goods and services must
      be dealt with fairly. Decisions to hire a subcontractor or source
      materials from a particular vendor must be made on the basis of objective
      criteria such as quality, reliability, technical excellence, price,
      delivery, service and maintenance of adequate sources of supply.

                                                     TRANSCANADA CORPORATION  37
<Page>
    - GOVERNMENT AND COMMUNITY RELATIONS -- The Company's financial support to
      political organizations requires the express approval of the Chief
      Executive Officer of the Company. Personnel engaging in personal political
      activities must do so in their own right and not on behalf of the Company.
      Corporate donations to charities made on behalf of the Company shall be
      within budgets approved by the appropriate business unit head.

    - PERSONAL RELATIONSHIPS -- Personnel shall avoid any arrangement or
      circumstance, including personal relationships that may compromise his or
      her ability to act in the best interest of the Company. Personnel shall
      not supervise directly or be in a position to influence the career of
      someone with whom he or she is engaged in a personal relationship.

C.  CONFIDENTIAL INFORMATION

    In the course of employment, personnel may have access to information that
    is non-public, confidential, privileged, or of value to competitors of the
    Company or that may be damaging to the Company if improperly disclosed.
    Personnel may also have access to the confidential information of companies
    with which the Company does business.

    Personnel must protect the confidentiality of information concerning the
    Company and its business activities as well as that of companies having
    business dealings with the Company. Personnel who leave the Company have an
    ongoing obligation to keep such information confidential.

    Some situations involving confidential information include:

    - TECHNICAL, BUSINESS AND COMMERCIAL DATA -- Personnel must ensure against
      improper disclosure of competitive business strategies and plans, special
      methods of operation, technical innovations, and other information that
      may be of value to competitors of the Company.

    - INSIDER TRADING -- Securities laws explicitly prohibit any person in a
      special relationship with the Company from trading with knowledge of
      "material non-public information" or "insider information" which has not
      been generally disclosed. In addition, securities laws prohibit any person
      in a special relationship with the Company from informing another person
      of any "material non-public" or "insider" information which has not been
      generally disclosed.
     Employees of TransCanada, and their immediate family members, will not
      trade in their personal account in any physical commodity or financial
      derivative of any physical or financial commodity related to those traded
      by the Company if that employee holds a position at TransCanada that would
      make them privy to detailed or inside information about the Company's
      commodity trading activities.

    - TRADING GUIDELINES FOR ALL PERSONNEL -- Those possessing confidential
      information are expected to show integrity and use proper judgement in
      timing their investments in accordance with Company policy and regulatory
      rules and guidelines.

    - MEDIA/PUBLIC DISCUSSION -- If responding to questions by a representative
      of the news media or investment community is not part of personnel's
      regular duties, the media representative must be referred to the
      appropriate Company spokesperson.

D.  FISCAL INTEGRITY AND RESPONSIBILITY

    All personnel are responsible for protecting Company assets, and leaders are
    specifically responsible for establishing and maintaining appropriate
    internal controls to safeguard Company assets against loss from unauthorised
    or improper use or disposition:

    - REPORTING INTEGRITY -- No false, artificial or misleading entries in the
      books, records and documents of the Company shall be made for any reason
      and no personnel shall engage in any arrangement that results in such
      prohibited acts. All periodic reports filed by TransCanada shall be in
      accordance with TransCanada's Public Disclosure Policy and will include
      full, fair, accurate, timely and understandable disclosure.

38  TRANSCANADA CORPORATION
<Page>
    - USE OF COMPANY RESOURCES -- Company resources include Company time,
      materials, supplies, equipment, information, electronic mail and computer
      systems. These resources are generally only to be used for
      Company-specific purposes.

    - USE OF INTERNET AND EMAIL -- TransCanada's computer networks and
      information resources include our electronic mail and messaging systems,
      internal Intranet and the public Internet. TransCanada's computer
      resources and networks are provided for company-related business purposes.
      Excessive personal use is inappropriate. Use of TransCanada's computer
      resources to view, retrieve or send sexually-related or pornographic
      messages or material; violent or hate-related messages or material;
      bigoted, racist or other offensive messages or other messages or material
      related to illegal activities is strictly prohibited.

    - USE OF COMPANY NAME -- Personnel must not use their employment status to
      obtain personal gain from those doing or seeking to do business with the
      Company. Personnel may not use the Company's name or purchasing power to
      obtain personal discounts or rebates unless the discounts are made
      available to all personnel.

    - PATENTS AND INVENTIONS -- Inventions, discoveries, and copyright material,
      made or developed by personnel in the course of, and relating to, their
      employment with the Company, are the property of the Company unless a
      written release is obtained or covered by contract.

    - RECORDS RETENTION -- Business documents and records (voice, paper and
      electronic) are to be retained in accordance with the law and the
      Company's record retention policies.

    In protecting the Company's resources, TransCanada reserves the right to
    periodically monitor access and contents of the Company's computer systems
    and networks. Personnel should not assume they have any right to privacy of
    electronic data residing on the Company's computer resources.

E.  HEALTH, SAFETY AND ENVIRONMENT

    TransCanada is committed to providing a safe and healthy working environment
    and protecting the public interest with standards and programs that meet or
    exceed industry standards and applicable government codes, standards and
    regulations in all jurisdictions in which it does business.

    All TransCanada operations are to be conducted in a manner that protects the
    health and safety of our personnel and all people in the communities where
    the Company operates. All TransCanada personnel are responsible for
    supporting TransCanada's commitment to environmental responsibility.

F.  EMPLOYMENT PRACTICES

    TransCanada is committed to a workplace environment where personnel are
    treated with dignity, fairness and respect. All personnel have the right to
    work in an atmosphere that provides equal employment opportunities and is
    free of discriminatory practices and illegal harassment:

    - DISCRIMINATION -- Neither TransCanada nor any person acting on behalf of
      the Company shall refuse to employ or continue to employ, nor shall they
      discriminate against any person with regard to employment, term or
      condition of employment, based on race, national or ethnic origin, colour,
      religion, age, sex (including pregnancy or child-birth) sexual
      orientation, marital status, family status, disability and conviction for
      which a pardon has been granted, all as defined by the Canadian Human
      Rights Act.

    - HARASSMENT -- Any form of illegal harassment or any other conduct that
      interferes with an individual's work performance or creates an
      intimidating, hostile, or offensive work environment will not be
      tolerated.

    - DRUG AND ALCOHOL POLICY -- The Company is committed to providing a safe
      and healthy work environment. The use of illicit drugs, the inappropriate
      use of alcohol and the misuse of medications and other substances is
      prohibited.

                                                     TRANSCANADA CORPORATION  39
<Page>
COMPLIANCE / EXCEPTIONS

Personnel are expected to comply with all aspects of the COBE and to support
others in doing so. In the event that personnel violate the COBE, Company
policies and procedures or any of the laws that govern the Company's business,
TransCanada will take immediate and appropriate action up to and including
termination of employment, claims for reimbursement of losses or damages and
reference to criminal authorities.

HOW TO RAISE A CONCERN

Personnel are obligated to promptly report any problems or concerns or any
potential or actual violation of the COBE. The first action should be to raise
the problem with your supervisor. If that is not possible for some reason or if
taking it to your supervisor does not resolve the matter, it is your
responsibility to take it up the chain of management within your organization or
another department such as Human Resources, Legal or Internal Audit. Personnel
can also call the anonymous Ethics Help-Line at 1-888-920-2042. Callers do not
have to reveal their identities.

TransCanada policy strictly prohibits reprisals or retaliation against anyone
who files an ethics concern or complaint. If you feel you have been subjected to
retaliatory or disciplinary action because you have raised an ethics issue, call
the Ethics HelpLine immediately.

CERTIFICATION

It is essential that all personnel understand and adhere to the Company's Code
of Business Ethics.

New personnel of the Company will be asked to certify their review of, and
agreement to be bound by, the COBE as a consideration of employment or contract.

All personnel of the Company will be asked to certify annually their review of
and compliance with the provisions contained in the Code of Business Ethics.

40  TRANSCANADA CORPORATION
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                                  SCHEDULE "D"
                     CODE OF BUSINESS ETHICS FOR DIRECTORS

Directors have a duty to manage or supervise the management of, the business and
affairs of the Company. In carrying out this duty the Company expects directors
to act honestly and in good faith with a view to the best interests of the
Company. To this end the Board of Directors has committed itself to maintaining
a high standard of Corporate Governance which incorporates as its basis
principles of good conduct and high ethical behavior.

To discharge their duties the Directors have adopted the following principles
for business conduct and ethical behavior.

COMPLIANCE WITH LAW

The Directors shall conduct all their business and affairs in full compliance
with applicable laws, rules and regulations and shall encourage and promote such
behaviors for themselves, officers and employees.

CONFLICTS OF INTEREST

Directors shall conduct their business and affairs in a manner that ensures
their private or personal interests do not interfere or appear to interfere,
with the interests of the Company including conflicts relative to personal,
financial or other gain. Should conflicts arise, or be perceived to arise,
directors shall immediately make full disclosure in an appropriate manner and
the disclosing Director shall not participate in any decision or action in which
there is a real or apparent conflict.

FAIR DEALING

The Company adheres to a policy of Fair Dealing in all its undertakings.
Directors shall endeavor to deal fairly with the Company's customers, suppliers,
competitors and employees. Taking unfair advantage through manipulation,
concealment, abuse of privilege, misrepresentation and other unfair dealing
practices is unacceptable.

CONFIDENTIALITY

Directors shall maintain the confidentiality of information entrusted to them
except in circumstances where disclosure is authorized or legally mandated.
Confidential information shall not be used for personal gain and Directors shall
adhere to the Company's policy on Trading by Employees and Insiders.

PROTECTION AND PROPER USE OF COMPANY ASSETS

Directors shall ensure that the Company's assets are protected and properly and
efficiently used for legitimate business purposes.

CORPORATE OPPORTUNITIES

Directors owe duty to advance the Company's legitimate interests whenever an
opportunity arises and are prohibited from:

    (a) Taking personal advantage of opportunities discovered through the use of
       corporate assets, property, information or their position;

    (b) Using or deploying corporate assets, property, information or their
       position for personal gain; and

    (c) Competing with the Company.

INCIDENT REPORTING

Directors are encouraged to promote ethical behavior in all things they do and
to ensure a healthy ethical workplace. The Company, through the principles and
standards adhered to by Directors, encourages officers and leaders to talk with
employees about ethical behaviors and to provide guidance on their ethical
concerns

                                                     TRANSCANADA CORPORATION  41
<Page>
including advising employees on appropriate actions to be taken or behaviors to
be followed. Violations of laws, rules, regulations or this Code of Business
Conduct are to be reported to the appropriate officer or leader or to the ethics
hot line.

The Directors on behalf of the Company will not allow any retaliation by
officers or leaders in respect of reports made in good faith by any employee.

WAIVERS

Directors and executive officers whose conduct or actions has failed to meet or
whose future conduct or actions may not meet the principles and standards set
out in this Code of Business Conduct must report such failure or anticipated
failure immediately to the Board of Directors. Such report shall contain a
request for a waiver of such conduct and be filed with the Chairman of the
Governance Committee for review and recommendation by that Committee. The
Governance Committee shall examine the circumstances related to the failure or
requested waiver for anticipated failure and make an appropriate recommendation
to the Board of Directors. Any determination of the Board of Directors that
noncompliance with the Code of Business Conduct has occurred or that, under the
circumstances, a waiver be granted to a Director or executive officer shall be
reported promptly to the shareholders.

ANNUAL REVIEW

Annually, the Company expects each Director to review this Code of Business
Conduct and Ethics and to satisfy themselves that they have adhered to the
stated principles and standards or if they have failed to do so to ensure such
non-compliance has been reported to the Board of Directors.

42  TRANSCANADA CORPORATION
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                                  SCHEDULE "E"
     CODE OF BUSINESS ETHICS FOR THE PRESIDENT AND CHIEF EXECUTIVE OFFICER,
                     CHIEF FINANCIAL OFFICER AND CONTROLLER

The Company and its shareholders expect honest and ethical conduct in all
aspects of the Company's business from all employees and to that end require
that all employees comply with the Company's Code of Business Ethics. In
addition, with respect to the Company's principal and senior financial officers,
the Company and its shareholders expect the highest possible standards of honest
and ethical conduct and require such officers to acknowledge this heightened
expectation.

I, [NAME] CERTIFY that as [THE CHIEF EXECUTIVE OFFICER/CHIEF FINANCIAL
OFFICER/CONTROLLER] of TransCanada Corporation (the "Company") I adhere to and
advocate the establishment of standards reasonably necessary to deter wrongdoing
and to promote:

1.  Honest and ethical conduct, including the ethical handling of actual or
    apparent conflicts of interest between personal and professional
    relationships;

2.  Full, fair, accurate, timely and understandable disclosure in reports and
    documents that the Company files with, or submits to, securities regulators
    and in other public communications made by the Company;

3.  Compliance with laws, rules and regulations of federal, provincial, state
    and local governments, and other appropriate private and public regulatory
    agencies; and

4.  Compliance with the prompt reporting to the Chair of the Company's audit
    committee all violations of this code.

I, [NAME] acknowledge my accountability for adherence to this code. I also
acknowledge that my compliance with this code is a condition of my employment
and that if I fail to comply with this code or applicable laws, rules or
regulations, I may be subject to disciplinary measures, up to and including
discharge from the Company. The Company will disclose any change or waiver of
this code in its disclosure documents and a form of this code shall be posted on
the Company's website.

------------------------------------------------
Signature

                                                     TRANSCANADA CORPORATION  43
<Page>
                                  SCHEDULE "F"
                         CHARTER OF THE AUDIT COMMITTEE

                                     PART I
                   ESTABLISHMENT OF COMMITTEE AND PROCEDURES

1.  COMMITTEE

    A Committee of the Directors to be known as the "Audit Committee" is
    established. The Committee shall assist the Board of Directors (the "Board")
    in overseeing, among other things, the integrity of the financial statements
    of the Company, the compliance by the Company with legal and regulatory
    requirements and the independence and performance of the Company's internal
    and external auditors.

2.  COMPOSITION OF COMMITTEE

    The Committee shall consist of not less than three and not more than nine
    Directors, a majority of whom are resident Canadians (as defined in the
    Canada Business Corporations Act), and all of whom are unrelated and/or
    independent as defined in the applicable requirements of relevant securities
    legislation and the applicable rules of any stock exchange on which the
    Company's securities are listed for trading. Each member of the Committee
    shall be financially literate and at least one member shall have accounting
    or related financial management expertise (as those terms are defined from
    time to time under the requirements or guidelines for audit committee
    service under securities laws and the applicable rules of any stock exchange
    on which the Company's securities are listed for trading or, if it is not so
    defined as that term is interpreted by the Board in its business judgment).

3.  APPOINTMENT OF COMMITTEE MEMBERS

    The members of the Committee shall be appointed by the Board on the
    recommendation of the Governance Committee. The members of the Committee
    shall be appointed as soon as practicable following each annual meeting of
    Shareholders, and shall hold office until the next annual meeting, or until
    their successors are earlier appointed, or until they cease to be Directors
    of the Company.

4.  VACANCIES

    Where a vacancy occurs at any time in the membership of the Committee, it
    may be filled by the Board on the recommendation of the Governance Committee
    and shall be filled by the Board if the membership of the Committee is less
    than three Directors or if the Committee ceases to meet the requirements for
    audit committees as provided under securities laws and the rules of any
    stock exchange upon which the Company's shares are listed for trading.

5.  COMMITTEE CHAIR

    The Board shall appoint a Chair for the Committee.

6.  ABSENCE OF COMMITTEE CHAIR

    If the Chair of the Committee is not present at any meeting of the
    Committee, one of the other members of the Committee present at the meeting
    shall be chosen by the Committee to preside at the meeting.

7.  SECRETARY OF COMMITTEE

    The Committee shall appoint a Secretary who need not be a Director of the
    Company.

44  TRANSCANADA CORPORATION
<Page>
8.  MEETINGS

    The Chair, or any two members of the Committee, or the internal auditor, or
    the external auditors may call a meeting of the Committee. The Committee
    shall meet at least quarterly. The Committee shall meet periodically with
    management, the internal auditors and the external auditors in separate
    executive sessions.

9.  QUORUM

    A majority of the members of the Committee, present in person or by
    telephone or other telecommunication device that permit all persons
    participating in the meeting to speak to each other, shall constitute a
    quorum.

10. NOTICE OF MEETINGS

    Notice of the time and place of every meeting shall be given in writing or
    facsimile communication to each member of the Committee at least 24 hours
    prior to the time fixed for such meeting; provided, however, that a member
    may in any manner waive a notice of a meeting. Attendance of a member at a
    meeting is a waiver of notice of the meeting, except where a member attends
    a meeting for the express purpose of objecting to the transaction of any
    business on the grounds that the meeting is not lawfully called.

11. ATTENDANCE OF COMPANY OFFICERS AND EMPLOYEES AT MEETING

    At the invitation of the Chair of the Committee, one or more officers or
    employees of the Company may attend any meeting of the Committee.

12. PROCEDURE, RECORDS AND REPORTING

    The Committee shall fix its own procedure at meetings, keep records of its
    proceedings and report to the Board when the Committee may deem appropriate
    but not later than the next meeting of the Board.

13. REVIEWS AND REPORTS

    The Committee shall review its terms of reference annually or otherwise, as
    it deems appropriate, and if necessary propose changes to the Governance
    Committee and the Board. The Committee shall make regular reports to the
    Board. The Committee shall annually review the Committee's own performance.

14. OUTSIDE EXPERTS

    The Committee, and on behalf of the Committee, the Committee Chair, is
    authorized when deemed necessary or desirable to retain independent counsel
    and other advisors, at the Company's expense, to advise the Committee
    independently on any matter.

15. RELIANCE

    Absent actual knowledge to the contrary (which shall be promptly reported to
    the Board), each member of the Committee shall be entitled to rely on
    (i) the integrity of those persons or organizations within and outside the
    Company from which it receives information, (ii) the accuracy of the
    financial and other information provided to the Committee by such persons or
    organizations and (iii) representations made by Management and the external
    auditors, as to any information technology, internal audit and other
    non-audit services provided by the external auditors to the Company and its
    subsidiaries.

                                    PART II
                              MANDATE OF COMMITTEE

16. APPOINTMENT OF THE COMPANY'S EXTERNAL AUDITORS

    Subject to confirmation by the external auditors of their compliance with
    Canadian and U.S. regulatory registration requirements, the Committee shall
    recommend to the Board the appointment of the external

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    auditors, such appointment to be confirmed by the Company's shareholders at
    each annual meeting. The Committee shall also recommend to the Board the
    compensation to be paid to the external auditors for audit services and
    shall pre-approve the retention of the external auditors for any permitted
    non-audit service and the fees for such service. The Committee shall also be
    directly responsible for the oversight of the work of the external auditor
    (including resolution of disagreements between management and the external
    auditor regarding financial reporting) for the purpose of preparing or
    issuing an audit report or related work. The external auditor shall report
    directly to the Committee.

    The Committee shall also receive periodic reports from the external auditors
    regarding the auditors' independence, discuss such reports with the
    auditors, consider whether the provision of non-audit services is compatible
    with maintaining the auditors' independence and the Committee shall take
    appropriate action to satisfy itself of the independence of the external
    auditors.

17. OVERSIGHT IN RESPECT OF FINANCIAL DISCLOSURE

    The Committee to the extent it deems it necessary or appropriate shall:

    (a) review, discuss with management and the external auditors and recommend
       to the Board for approval, the Company's audited annual financial
       statements, annual information form including management discussion and
       analysis, all financial statements in prospectuses and other offering
       memoranda, financial statements required by regulatory authorities, all
       prospectuses and all documents which may be incorporated by reference
       into a prospectus, including without limitation, the annual proxy
       circular, but excluding any pricing supplements issued under a medium
       term note prospectus supplement of the Company;

    (b) review, discuss with management and the external auditors and recommend
       to the Board for approval the release to the public of the Company's
       interim reports, including the financial statements, management
       discussion and analysis and press releases on quarterly financial
       results;

    (c) review and discuss with management and external auditors the use of
       "pro forma" or "adjusted" non-GAAP information and the applicable
       reconciliation;

    (d) review and discuss with management and external auditors financial
       information and earnings guidance provided to analysts and rating
       agencies; provided, however, that such discussion may be done generally
       (consisting of discussing the types of information to be disclosed and
       the types of presentations to be made). The Committee need not discuss in
       advance each instance in which the Company may provide earnings guidance
       or presentations to rating agencies;

    (e) review annual and quarterly financial statements and annual disclosure
       documents of NOVA Gas Transmission Ltd. ("NGTL");

    (f) review with management and the external auditors major issues regarding
       accounting and auditing principles and practices, including any
       significant changes in the Company's selection or application of
       accounting principles, as well as major issues as to the adequacy of the
       Company's internal controls and any special audit steps adopted in light
       of material control deficiencies that could significantly affect the
       Company's financial statements;

    (g) review and discuss quarterly reports from the external auditors on:

        (i) all critical accounting policies and practices to be used;

        (ii) all alternative treatments of financial information within
             generally accepted accounting principles that have been discussed
             with management, ramifications of the use of such alternative
             disclosures and treatments, and the treatment preferred by the
             external auditor;

       (iii) other material written communications between the external auditor
             and management, such as any management letter or schedule of
             unadjusted differences;

    (h) review with management and the external auditors the effect of
       regulatory and accounting initiatives as well as off-balance sheet
       structures on the Company's financial statements;

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    (i) review with management, the external auditors and, if necessary, legal
       counsel, any litigation, claim or contingency, including tax assessments,
       that could have a material effect upon the financial position of the
       Company, and the manner in which these matters have been disclosed in the
       financial statements;

    (j) review disclosures made to the Committee by the Company's CEO and CFO
       during their certification process for the periodic reports filed with
       securities regulators about any significant deficiencies in the design or
       operation of internal controls or material weaknesses therein and any
       fraud involving management or other employees who have a significant role
       in the Company's internal controls;

    (k) discuss with management the Company's material financial risk exposures
       and the steps management has taken to monitor and control such exposures,
       including the Company's risk assessment and risk management policies.

18. OVERSIGHT IN RESPECT OF LEGAL AND REGULATORY MATTERS

    (a) review with the Company's General Counsel legal matters that may have a
       material impact on the financial statements, the Company's compliance
       policies and any material reports or inquiries received from regulators
       or governmental agencies.

19. OVERSIGHT IN RESPECT OF INTERNAL AUDIT

    (a) review the audit plans of the internal auditors of the Company including
       the degree of coordination between such plan and that of the external
       auditors and the extent to which the planned audit scope can be relied
       upon to detect weaknesses in internal control, fraud or other illegal
       acts;

    (b) review the significant findings prepared by the internal auditing
       department and recommendations issued by the Company or by any external
       party relating to internal audit issues, together with management's
       response thereto;

    (c) review compliance with the Company's policies and avoidance of conflicts
       of interest;

    (d) review the adequacy of the resources of the internal auditor to ensure
       the objectivity and independence of the internal audit function,
       including reports from the internal audit department on its audit process
       with associates and affiliates;

    (e) ensure the internal auditor has access to the Chair of the Committee and
       of the Board and to the Chief Executive Officer and meet separately with
       the internal auditor to review with him any problems or difficulties he
       may have encountered and specifically:

        (i) any difficulties which were encountered in the course of the audit
            work, including restrictions on the scope of activities or access to
            required information, and any disagreements with management;

        (ii) any changes required in the planned scope of the internal audit;
             and

       (iii) the internal audit department responsibilities, budget and
             staffing;

       and to report to the Board on such meetings;

    (f) bi-annually review officers' expenses and aircraft usage reports.

20. OVERSIGHT IN RESPECT OF THE EXTERNAL AUDITORS

    (a) review the annual post-audit or management letter from the external
       auditors and management's response and follow-up in respect of any
       identified weakness, inquire regularly of management and the external
       auditors of any significant issues between them and how they have been
       resolved, and intervene in the resolution if required;

    (b) review the quarterly unaudited financial statements with the external
       auditors and receive and review the review engagement reports of external
       auditors on unaudited financial statements of the Company and NGTL;

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    (c) receive and review annually the external auditors' formal written
       statement of independence delineating all relationships between itself
       and the Company;

    (d) meet separately with the external auditors to review with them any
       problems or difficulties the external auditors may have encountered and
       specifically:

        (i) any difficulties which were encountered in the course of the audit
            work, including any restrictions on the scope of activities or
            access to required information, and any disagreements with
            management; and

        (ii) any changes required in the planned scope of the audit;

       and to report to the Board on such meetings;

    (e) review with the external auditors the adequacy and appropriateness of
       the accounting policies used in preparation of the financial statements;

    (f) meet with the external auditors prior to the audit to review the
       planning and staffing of the audit;

    (g) receive and review annually the external auditors' written report on
       their own internal quality control procedures; any material issues raised
       by the most recent internal quality control review, or peer review, of
       the external auditors, or by any inquiry or investigation by governmental
       or professional authorities, within the preceding five years, and any
       steps taken to deal with such issues;

    (h) review and evaluate the external auditors, including the lead partner of
       the external auditor team;

    (i) ensure the rotation of the lead (or coordinating) audit partner having
       primary responsibility for the audit and the audit partner responsible
       for reviewing the audit as required by law.

21. OVERSIGHT IN RESPECT OF AUDIT AND NON-AUDIT SERVICES

    (a) pre-approve all audit services (which may entail providing comfort
       letters in connection with securities underwritings) and all permitted
       non-audit services, other than non-audit services where:

        (i) the aggregate amount of all such non-audit services provided to the
            Company constitutes not more than 5% of the total fees paid by the
            Company and its subsidiaries to the external auditor during the
            fiscal year in which the non-audit services are provided;

        (ii) such services were not recognized by the Company at the time of the
             engagement to be non-audit services; and

       (iii) such services are promptly brought to the attention of the
             Committee and approved prior to the completion of the audit by the
             Committee or by one or more members of the Committee to whom
             authority to grant such approvals has been delegated by the
             Committee;

    (b) approval by the Committee of a non-audit service to be performed by the
       external auditor shall be disclosed as required under securities laws and
       regulations;

    (c) the Committee may delegate to one or more designated members of the
       Committee the authority to grant pre-approvals required by this
       subsection. The decisions of any member to whom authority is delegated to
       pre-approve an activity shall be presented to the Committee at its first
       scheduled meeting following such pre-approval;

    (d) if the Committee approves an audit service within the scope of the
       engagement of the external auditor, such audit service shall be deemed to
       have been pre-approved for purposes of this subsection.

22. OVERSIGHT IN RESPECT OF CERTAIN POLICIES

    (a) review and recommend to the Board for approval policy changes and
       program initiatives deemed advisable by management or the Committee with
       respect to the Company's codes of business conduct and ethics;

48  TRANSCANADA CORPORATION
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    (b) obtain reports from management, the Company's senior internal auditing
       executive and the external auditors and report to the Board on the status
       and adequacy of the Company's efforts to ensure its businesses are
       conducted and its facilities are operated in an ethical, legally
       compliant and socially responsible manner, in accordance with the
       Company's codes of business conduct and ethics;

    (c) establish a non-traceable, confidential and anonymous system by which
       callers may ask for advice or report any ethical or financial concern,
       ensure that procedures for the receipt, retention and treatment of
       complaints in respect of accounting, internal controls and auditing
       matters are in place, and receive reports on such matters as necessary;

    (d) annually review and assess the adequacy of the Company's public
       disclosure policy.

23. OVERSIGHT IN RESPECT OF PENSION MATTERS

    (a) consider and in accordance with regulatory requirements approve any
       changes in the Company's pension plans having to do with financial
       matters after consultation with the Human Resources Committee in respect
       of any effect such a change may have on pension benefits;

    (b) review and consider financial and investment reports relating to the
       Company's pension plans;

    (c) appoint and terminate the engagement of investment managers with respect
       to the Company's pension plans;

    (d) receive, review and report to the Board on the actuarial valuation and
       funding requirements for the Company's pension plans.

24. OVERSIGHT IN RESPECT OF INTERNAL ADMINISTRATION

    (a) review annually the reports of the Company's representatives on certain
       audit committees of subsidiaries and affiliates of the Company and any
       significant issues and auditor recommendations concerning such
       subsidiaries and affiliates;

    (b) review the succession plans in respect of the Chief Financial Officer,
       the Vice President, Risk Management and the Director, Internal Audit;

    (c) review and approve guidelines for the Company's hiring of employees or
       former employees of the external auditors who were engaged on the
       Company's account.

25. OVERSIGHT FUNCTION

    While the Committee has the responsibilities and powers set forth in this
    Charter, it is not the duty of the Committee to plan or conduct audits or to
    determine that the Company's financial statements and disclosures are
    complete and accurate or are in accordance with generally accepted
    accounting principles and applicable rules and regulations. These are the
    responsibilities of management and the external auditors. The Committee, its
    Chair and any of its members who have accounting or related financial
    management experience or expertise, are members of the Board, appointed to
    the Committee to provide broad oversight of the financial disclosure,
    financial risk and control related activities of the Company, and are
    specifically not accountable nor responsible for the day to day operation of
    such activities. Although designation of a member or members as an "audit
    committee financial expert" is based on that individual's education and
    experience, which that individual will bring to bear in carrying out his or
    her duties on the Committee, designation as an "audit committee financial
    expert" does not impose on such person any duties, obligations or liability
    that are greater than the duties, obligations and liability imposed on such
    person as a member of the Committee and Board in the absence of such
    designation. Rather, the role of any audit committee financial expert, like
    the role of all Committee members, is to oversee the process and not to
    certify or guarantee the internal or external audit of the Company's
    financial information or public disclosure.

                                                     TRANSCANADA CORPORATION  49
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                                  SCHEDULE "G"
                      CHARTER OF THE GOVERNANCE COMMITTEE

                                     PART I
                   ESTABLISHMENT OF COMMITTEE AND PROCEDURES

1.  COMMITTEE

    A Committee of the Directors to be known as the "Governance Committee" is
    established.

2.  COMPOSITION OF COMMITTEE

    The Committee shall consist of not less than three and not more than seven
    Directors, a majority of whom are resident Canadians (as defined in the
    Canada Business Corporations Act) and all of whom shall be unrelated and
    independent as determined by the Board.

3.  APPOINTMENT OF COMMITTEE MEMBERS

    Members of the Committee shall be appointed at the meeting of the Directors
    immediately following the annual meeting of Shareholders, and shall hold
    office until the next annual meeting, or until their successors are
    appointed, or until they cease to be Directors of the Company. It is
    desirable that membership on the Committee be rotated such that as many
    different Directors as possible have an opportunity at some time to serve on
    the Committee.

4.  VACANCIES

    Where a vacancy occurs at any time in the membership of the Committee, it
    may be filled by the Board and shall be filled by the Board if the
    membership of the Committee is less than three Directors.

5.  COMMITTEE CHAIR

    The Board shall appoint a Chair for the Committee.

6.  ABSENCE OF COMMITTEE CHAIR

    If the Chair of the Committee is not present at any meeting of the
    Committee, one of the other members of the Committee present at the meeting
    shall be chosen by the Committee to preside at the meeting.

7.  SECRETARY OF COMMITTEE

    The Committee shall appoint a Secretary who need not be a director of The
    Company.

8.  MEETINGS

    The Chair or any two members of the Committee may call a meeting of the
    Committee. The Committee shall meet at least semi-annually. Although the
    Chair of the Board and the Company's President and Chief Executive Officer
    may attend all meetings of the Committee, the Committee will also meet in
    separate executive sessions.

9.  QUORUM

    A majority of the members of the Committee, present in person or by
    telephone or other telecommunication device that permits all persons
    participating in the meeting to speak to each other, shall constitute a
    quorum.

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10. NOTICE OF MEETINGS

    Notice of the time and place of every meeting shall be given in writing or
    facsimile communication to each member of the Committee at least 24 hours
    prior to the time fixed for such meeting, provided, however, that a member
    may in any manner waive a notice of a meeting; and attendance of a member at
    a meeting is a waiver of notice of the meeting, except where a member
    attends a meeting for the express purpose of objecting to the transaction of
    any business on the grounds that the meeting is not lawfully called.

11. ATTENDANCE OF OFFICERS OR EMPLOYEES OF THE COMPANY AT MEETING

    At the invitation of the Chair of the Committee, one or more officers or
    employees of the Company may attend any meeting of the Committee.

12. PROCEDURE, RECORDS AND REPORTING

    The Committee shall fix its own procedure at meetings, keep records of its
    proceedings and report to the Board but not later than the next meeting of
    the Board.

13. REVIEW OF TERMS OF REFERENCE

    The Committee shall evaluate on an annual basis its performance and review
    its Charter and shall as it deems appropriate propose any changes to the
    Board for approval.

                                    PART II
                              MANDATE OF COMMITTEE

14. GENERAL MANDATE

    The Committee's mandate is to enhance the Company's corporate governance
    through a continuing assessment of The Company's approach to corporate
    governance and to make policy recommendations with respect thereto.

    In addition, the Committee is mandated with identifying qualified
    individuals to become board members and to recommend to the Board the
    director nominees for appointment at the next annual meeting.

15. SPECIFIC MANDATES

    I.  The Committee shall:

       (a) review from time to time the size, composition and profile of the
           Board of Directors including a review of the criteria for selecting
           new directors;

       (b) review and report to the Board annually on its assessment of the
           performance of the Board and the Committees of the Board, and the
           basis of that evaluation;

       (c) review annually the performance and contribution of individual Board
           members, including an evaluation of the competencies and skills the
           Board as a whole should possess;

       (d) identify individuals qualified to become members of the Board and to
           recommend to the Board for selection the director nominees for
           election at the annual meeting of shareholders, or to be appointed to
           fill any vacancies;

       (e) be authorized when deemed necessary or desirable to engage and
           compensate any outside advisor as it determines necessary to permit
           it to carry out its duties;

       (f) review from time to time the retirement age of the Directors;

       (g) review and recommend to the Board of Directors candidates for the
           office of Chairman of the Board;

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       (h) conduct an annual review of Directors' compensation for Board and
           Committee service taking into account such criteria as time
           commitment, compensation provided by comparative companies,
           responsibilities, and recommend any change for Board approval; and

       (i) make recommendations relative to the composition of the various
           Committees of the Board.

    II. The Committee shall develop the policies and procedures of the Board of
       Directors regarding corporate governance issues, including:

       (a) on an annual basis, recommend and bring forward to the Board a
           general list of corporate governance issues for review, discussion or
           action by the Board or a Committee thereof;

       (b) review the Company's structures and procedures to ensure that the
           Board of Directors is able to and in fact is, functioning
           independently of management;

       (c) assess the effectiveness of the Board as a whole and recommend steps
           which may be taken to improve effectiveness;

       (d) assess the availability, relevance and timeliness of information
           required by the Board;

       (e) monitor the quality of the relationship between management and the
           Board and recommend improvements as deemed necessary or desirable;

       (f) ensure that any issues of corporate governance identified by any
           directors are raised to management;

       (g) review any surveys completed by directors dealing with the
           effectiveness of the operation of the Board; and

       (h) undertake such other initiatives as are needed to help deliver
           preeminent corporate governance.

52  TRANSCANADA CORPORATION
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                                  SCHEDULE "H"
            CHARTER OF THE HEALTH, SAFETY AND ENVIRONMENT COMMITTEE

                                     PART I
                   ESTABLISHMENT OF COMMITTEE AND PROCEDURES

1.  COMMITTEE

    A Committee of the Directors to be known as the "Health, Safety and
    Environment Committee" is hereby established.

2.  COMPOSITION OF COMMITTEE

    The Committee shall consist of not less than five and not more than eight
    Directors, a majority of whom are resident Canadians (as defined in the
    Canada Business Corporations Act), none of whom is either an officer or
    employee of the Company or any of its subsidiaries and a majority of whom
    are persons not affiliated with the Company.

3.  APPOINTMENT OF COMMITTEE MEMBERS

    Members of the Committee shall be appointed at the meeting of the Directors
    immediately following the annual meeting of Shareholders, and shall hold
    office until the next annual meeting, or until their successors are
    appointed, or until they cease to be Directors of the Company. It is
    desirable that membership on the Committee be rotated such that as many
    different Directors as possible have an opportunity at some time to serve on
    the Committee.

4.  VACANCIES

    Where a vacancy occurs at any time in the membership of the Committee, it
    may be filled by the Board and shall be filled by the Board if the
    membership of the Committee is less than five Directors.

5.  COMMITTEE CHAIR

    The Board shall appoint a Chair for the Committee.

6.  ABSENCE OF COMMITTEE CHAIR

    If the Chair of the Committee is not present at any meeting of the
    Committee, one of the other members of the Committee present at the meeting
    shall be chosen by the Committee to preside at the meeting.

7.  SECRETARY OF COMMITTEE

    The Committee shall appoint a Secretary who need not be a director of the
    Company.

8.  MEETINGS

    The Chair or any two members of the Committee or the external auditors may
    call a meeting of the Committee. The Committee shall meet at least three
    times per year.

9.  QUORUM

    Three members of the Committee, present in person or by telephone or other
    telecommunication device that permit all persons participating in the
    meeting to speak to each other, shall constitute a quorum.

10. NOTICE OF MEETINGS

    Notice of the time and place of every meeting shall be given in writing or
    facsimile communication to each member of the Committee at least 24 hours
    prior to the time fixed for such meeting, provided, however,

                                                     TRANSCANADA CORPORATION  53
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    that a member may in any manner waive a notice of a meeting; and attendance
    of a member at a meeting is a waiver of notice of the meeting, except where
    a member attends a meeting for the express purpose of objecting to the
    transaction of any business on the grounds that the meeting is not lawfully
    called.

11. ATTENDANCE OF OFFICERS OF THE COMPANY AT MEETING

    At the invitation of the Chair of the Committee, one or more officers of the
    Company may attend any meeting of the Committee.

12. PROCEDURE, RECORDS AND REPORTING

    The Committee shall fix its own procedure at meetings, keep records of its
    proceedings and report to the Board when the Committee may deem appropriate
    (but not later than the next meeting of the Board).

13. REVIEW OF TERMS OF REFERENCE

    The Committee shall review its terms of reference annually or otherwise as
    it deems appropriate and propose recommended changes to the Governance
    Committee and to the Board.

                                    PART II
                              MANDATE OF COMMITTEE

14. SPECIFIC MANDATES

    I.  The Committee shall:

       (a) monitor on a regular basis the existing health, safety and
           environmental practices and procedures of the Company and its
           controlled subsidiaries for compliance with applicable legislation,
           conformity with industry standards and prevention or mitigation of
           losses;

       (b) consider whether the Company's policies relating to health, safety
           and environmental matters are being effectively implemented;

       (c) review and consider reports and recommendations issued by the Company
           or by an external party relating to health, safety or environmental
           issues, together with management's response thereto;

       (d) advise and make recommendations to the Board of Directors as
           appropriate on matters relating to health, safety and the
           environment;

       (e) review and report, as appropriate, to the Board of Directors on the
           Company's policies and procedures relating to health, safety and the
           environment and, if appropriate, make recommendations to the Board of
           Directors;

       (f) ensure the internal auditor has access to the Chairmen of the
           Committee and the Board and to the Chief Executive Officer; and

       (g) meet separately with the Vice-President, Health, Safety and
           Environment and report to the Board on such meetings.

54  TRANSCANADA CORPORATION
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                                  SCHEDULE "I"
                    CHARTER OF THE HUMAN RESOURCES COMMITTEE

                                     PART I
                   ESTABLISHMENT OF COMMITTEE AND PROCEDURES

1.  COMMITTEE

    A Committee of the Directors to be known as the "Human Resources Committee"
    is hereby established.

2.  COMPOSITION OF COMMITTEE

    The Committee shall consist of not less than four and not more than seven
    Directors, at least twenty-five percent of whom must be resident Canadians
    and all of whom must be outside, non-management and unrelated directors.

3.  APPOINTMENT OF COMMITTEE MEMBERS

    Members of the Committee shall be appointed at the meeting of the Directors
    immediately following the annual meeting of Shareholders, and shall hold
    office until the next annual meeting, or until their successors are
    appointed, or until they cease to be Directors of the Company unless
    otherwise removed by a majority vote of the Board of Directors (Board).

4.  VACANCIES

    Where a vacancy occurs at any time in the membership of the Committee, it
    may be filled by the Board and shall be filled by the Board if the
    membership of the Committee is less than four Directors.

5.  COMMITTEE CHAIR

    The Board shall appoint a Chair for the Committee.

6.  ABSENCE OF COMMITTEE CHAIR

    If the Chair of the Committee is not present at any meeting of the
    Committee, one of the other members of the Committee present at the meeting
    shall be chosen by the Committee to preside at the meeting.

7.  SECRETARY OF COMMITTEE

    The Committee shall appoint a Secretary who need not be a director of the
    Company.

8.  MEETINGS

    The Chair or any two members of the Committee may call a meeting of the
    Committee. The Committee shall meet at least semi-annually.

9.  QUORUM

    A majority of the Committee, present in person or by telephone or other
    telecommunication device that permit all persons participating in the
    meeting to speak to each other, shall constitute a quorum.

10. NOTICE OF MEETINGS

    Notice of the time and place of every meeting shall be given in writing or
    facsimile communication to each member of the Committee at least 24 hours
    prior to the time fixed for such meeting, provided, however, that a member
    may in any manner waive a notice of a meeting; and attendance of a member at
    a meeting is

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    a waiver of notice of the meeting, except where a member attends a meeting
    for the express purpose of objecting to the transaction of any business on
    the grounds that the meeting is not lawfully called.

11. ATTENDANCE OF OFFICERS OF THE COMPANY AT MEETING

    At the invitation of the Chair of the Committee, one or more officers or
    employees of the Company may attend any meeting of the Committee.

12. PROCEDURE, RECORDS AND REPORTING

    The Committee shall fix its own procedure at meetings, keep records of its
    proceedings and report to the Board when the Committee may deem appropriate,
    but in any event not later than the next meeting of the Board.

13. REVIEW OF TERMS OF REFERENCE AND EVALUATION OF COMMITTEE

    The Committee shall conduct an annual review of its performance and shall in
    line with this review, review its terms of reference and recommend, if
    required, any changes for implementation to the Governance Committee and to
    the Board.

14. OUTSIDE EXPERTS

    The Committee Chair, on behalf of the Committee, is authorized when deemed
    necessary or desirable to retain outside experts, at the Company's expense
    to advise the Committee independently on any matter.

                                    PART II
                         SPECIFIC MANDATES OF COMMITTEE

15. The Committee shall:

    (a) review with the President and Chief Executive Officer existing
       management resources and plans, including recruitment and training
       programs, for ensuring that qualified personnel will be available for
       succession to executive officer positions in the Company and key officer
       positions in its major subsidiaries, and report on this matter to the
       Board at least once each year.

    (b) review and recommend to the Board goals and objectives relevant to the
       President and Chief Executive Officer's compensation and will conduct an
       annual review and assessment of the performance against these objectives
       of the President and Chief Executive Officer, and review annually the
       performance of the senior executive officers of the Company and key
       officers in its major subsidiaries.

    (c) consider, with the President and Chief Executive Officer, proposed
       changes in organization or personnel affecting the officers' group and
       recommend for approval any change requiring Board action.

    (d) approve and review with the President and Chief Executive Officer the
       Company's overall compensation philosophy and plans in relation to the
       Company's business strategy.

    (e) consider and approve the salary and other remuneration, including
       termination packages, to be awarded to each senior executive officer of
       the Company and key officers of its major subsidiaries and report to the
       Board on the remuneration package for the Chairman, the President and
       Chief Executive Officer, and the executive officers.

    (f) consider and approve changes in the Company's compensation and benefit
       plans involving an annual change in cost to the Company in excess of
       $3 million.

    (g) consider and approve any changes in the Company's pension plans having
       to do with benefits after consultation with the Audit and Risk Management
       Committee in respect of any effect such a change may have on pension
       financial matters; appoint members to the Company's Pension Committee,
       and report thereon to the Board.

56  TRANSCANADA CORPORATION
<Page>
    (h) administer the Stock Option Plan and the Performance Unit Plan (PUP)
       (collectively referred to as the "Plans") including the following:

        (i) consider and approve the designation of employees who are to
            participate in the Plans and consider and approve the granting of
            options and Units related thereto under the Plans to the
            participating employees;

        (ii) consider and approve the price at which options may be granted
             under the Stock Option Plan to the participating employees;

       (iii) consider and recommend to the Board any requirement for shares to
             be set aside under the Stock Option Plan from the authorized and
             unissued shares of the Company;

        (iv) subject to the provisions of the Plans, consider and approve any
             amendments to the Plans as may be deemed necessary or advisable for
             the granting of options related thereto under the Stock Option Plan
             or the issue of units under PUP, and for the proper administration
             and operation of the Plans;

        (v) consider and recommend to the Board any amendments to the Plans or
            discontinuance or substitution thereof; and

        (vi) consider and approve any amendments to any agreements under the
             Plans for any participating employees.

    (i) administer the Restricted Share Unit Plan (RSU) and the Executive Share
       Unit Plan (ESU) (collectively referred to as the "Unit Plans") including,
       as legally necessary, the following:

        (i) determine the performance hurdles to be achieved under the Unit
            Plans and where applicable to amend such performance hurdles;

        (ii) consider and approve the designation of employees who are to
             participate in each of the Unit Plans and consider and approve the
             granting of Units related thereto under the Unit Plans to the
             respective participating employees;

       (iii) consider and approve the value of the shares with respect to which
             units may be granted under the Unit Plans to the respective
             participating employees;

        (iv) to take whatever steps are necessary to ensure the proper
             administration and operation of the Unit Plans including but not
             limited to the application of discretion where required;

        (v) review performance against the performance hurdles for the Unit
            Plans, and determine and provide direction for pay out of units
            granted under the Unit Plans;

        (vi) subject to the provisions of the Unit Plans, consider and approve
             any significant amendments to the Unit Plans as may be deemed
             necessary or advisable for the granting of units related thereto
             under the Unit Plans, and for the proper administration and
             operation of the Unit Plans;

       (vii) consider and recommend to the Board any significant amendments to
             the Unit Plans or discontinuance or substitution thereof; and

      (viii) consider and approve any significant amendments to any agreements
             under the Unit Plans for any participating employees.

    (j) review and approve the annual report on executive compensation for
       inclusion in the Company's public disclosure documents; and

    (k) discharge any other responsibilities allocated to the Committee by the
       Board.

                                                     TRANSCANADA CORPORATION  57
<Page>



TRANSCANADA CORPORATION 2003 ANNUAL REPORT



FOCUSED STRATEGY



SOLID PERFORMANCE

[LOGO] TRANSCANADA
       IN BUSINESS TO DELIVER

<Page>

Progress Report 1   Chairman's Message 4   Letter to Shareholders 5
Management's Discussion and Analysis 7   Consolidated Financial Statements 53
Supplementary Information 89   Investor Information 92



Cover photo: A compressor station on the Foothills System. TransCanada increased
its ownership of Foothills Pipe Lines Ltd. to 100% from 50% in August 2003.


<TABLE>
<CAPTION>
OPERATING RESULTS

Year ended December 31 (millions of dollars)    2003      2002      2001       2000
---------------------------------------------------------------------------------------
<S>                                           <C>       <C>       <C>        <C>
INCOME STATEMENT
Net income/(loss)
    Continuing operations                        801       747       686        628
    Discontinued operations                       50        --       (67)        61
---------------------------------------------------------------------------------------
                                                 851       747       619        689
=======================================================================================
CASH FLOW STATEMENT
Funds generated from continuing operations     1,810     1,827     1,624      1,495
Capital expenditures and acquisitions
    Continuing operations                        961       814     1,025        773
    Discontinued operations                       --        13        52        362
    Total                                        961       827     1,077      1,135
BALANCE SHEET
Total assets                                  20,544    19,966    19,905     24,768
Long-term debt                                 9,465     8,815     9,347      9,928
Common shareholders' equity                    6,091     5,747     5,426      5,211
---------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
COMMON SHARE STATISTICS

Year ended December 31                          2003      2002       2001      2000
---------------------------------------------------------------------------------------
<S>                                          <C>       <C>        <C>       <C>
Net income/(loss) per share - basic

    Continuing operations                    $  1.66   $  1.56    $  1.44   $  1.32
    Discontinued operations                     0.10        --      (0.14)     0.13
---------------------------------------------------------------------------------------
                                             $  1.76   $  1.56    $  1.30   $  1.45
=======================================================================================
Net income per share - diluted               $  1.76   $  1.55    $  1.30   $  1.45
Dividends declared per share                 $  1.08   $  1.00    $  0.90   $  0.80
Common shares outstanding (millions)
    Average for the year                       481.5     478.3      475.8     474.6
    End of year                                483.2     479.5      476.6     474.9
---------------------------------------------------------------------------------------
</TABLE>


Net Income from
Continuing Operations
(millions of dollars)

<TABLE>
<S>  <C>
03   801
02   747
01   686
00   628
</TABLE>


Funds Generated from
Continuing Operations
(millions of dollars)

<TABLE>
<S>  <C>
03   1,810
02   1,827
01   1,624
00   1,495
</TABLE>


Capital Expenditures and Acquisitions
in Continuing Operations
(millions of dollars)

<TABLE>
<S>  <C>
03     961
02     814
01   1,025
00     773
</TABLE>

<Page>

     TRANSCANADA'S STRATEGY is simply stated with five focused elements. It has
set our direction and guided our efforts since it was first adopted nearly four
years ago. Our strategy drives us to achieve operational excellence in
everything we do, and empowers us to focus our energies on long-term growth and
sustainability. Given time, we believe our strategy will enable us to become the
most profitable, competitive and reliable provider of natural gas transmission
and power services in North America.



FOCUSED STRATEGY - 2003 PROGRESS REPORT

[PHOTOS]


1  MAINTAIN AND UTILIZE OUR
   STRONG FINANCIAL POSITION

o  Increased earnings from continuing operations by 7%

o  Maintained strong cash flow

o  Continued to strengthen our balance sheet

o  Invested more than $1.2 billion, including assumed debt,
   in our core businesses

o  Increased the dividend by 7% in January 2004

o  Delivered 27% total return to shareholders including dividends


Net Income per Common Share from
Continuing Operations - Basic
(dollars)

<TABLE>
<S>  <C>
03   1.66
02   1.56
01   1.44
00   1.32
</TABLE>


Dividends Declared
per Common Share
(dollars)

<TABLE>
<S>  <C>
03   1.08
02   1.00
01   0.90
00   0.80
</TABLE>


Total Shareholder Return
(per cent) (see page 91)

<TABLE>
<S>  <C>
03   27
02   21
01   21
00   48
</TABLE>

<Page>

2  PROGRESS REPORT

     TRANSCANADA IS WELL POSITIONED to capture new opportunities created by the
growing North American demand for natural gas and poised to play a key role in
connecting new gas supplies to North American markets. We own and operate one of
the largest, most sophisticated, remote-controlled natural gas pipeline networks
in the world. We have a strong track record of growth and value creation in our
power generation business, with an expanding portfolio of cost-competitive, well
located power plants in Canada and the United States.



[PHOTOS]


2  SUSTAIN, GROW AND
   OPTIMIZE OUR NATURAL
   GAS TRANSMISSION BUSINESS

o  Increased our ownership interest in Foothills Pipe Lines Ltd. to 100%
   from 50%; as a result TransCanada, through its subsidiaries, now holds
   the certificates for both the Alaskan and Canadian portions of an
   Alaska Highway pipeline project

o  Increased our ownership interest in Portland Natural Gas Transmission System
   to 61.7% from 33.3%

o  Secured a position in the Mackenzie Gas Pipeline Project

o  Progressed the development of multiple liquefied natural gas projects in the
   Northeast U.S. and eastern Canada, and announced the Fairwinds project in
   Harpswell, Maine


3  FURTHER THE EVOLUTION
   OF A REGULATED
   BUSINESS MODEL

o  Requested and was granted leave to appeal the dismissal of our request
   for review and variance of the National Energy Board's (NEB) Fair
   Return decision (outcome of the appeal is pending)

o  Received NEB approval of key components of our 2003 Canadian Mainline
   Tolls and Tariff Application, including the approval of a new tolling
   zone and increased depreciation rates

o  Reached with our shippers on our Alberta System a one-year settlement
   on the 2003 revenue requirement and a settlement on tolls and tariffs
   issues. Both were approved by the Alberta Energy and Utilities Board
   (EUB)

o  Filed a general rate application for 2004 for our Alberta System

o  Participated in the Generic Cost of Capital Proceedings held by the EUB
   in which the Board expects to adopt a standardized approach to
   determining the rate of return and capital structure for all utilities
   in Alberta

<Page>

                                                                               3

[MAP]

[PHOTOS]


4  GROW AND
   OPTIMIZE OUR
   POWER BUSINESS

o  Acquired a 31.6% interest in Bruce Power, adding approximately 1,500
   megawatts (MW) of low-cost, base load generation to our power portfolio

o  Announced the development of the 550 MW Becancour cogeneration plant
   in Quebec

o  Began construction of the 90 MW Grandview cogeneration plant in New Brunswick

o  Completed construction in Alberta of the 80 MW Bear Creek cogeneration plant
   and the 165 MW MacKay River cogeneration plant


5  PURSUE
   OPERATIONAL
   EXCELLENCE

o  Reduced operating and maintenance costs on our wholly-owned pipeline systems
   by continuously improving our efficiency and productivity

o  Delivered overall power facility availability that meets and exceeds
   industry standards

o  Maintained industry-leading safety and environmental performance

o  Continued to develop and introduce leading-edge technologies that
   enhance the operational reliability, cost efficiency, and environmental
   and safety performance of our facilities

o  Continued to improve customer satisfaction levels with customer survey
   showing 99% of natural gas transmission customers satisfied with our
   transactional systems and 88% satisfied with overall customer service

<Page>

4

      Developing a corporate strategy is easy - the real test is in its
successful execution. The President and Chief Executive Officer's report
provides complete coverage of our strategy and current status. As the company's
progress and results show, our people deliver. TransCanada has a young, dynamic
and cohesive management team who continue to demonstrate excellence in
leadership and execution, supported by a skilled and talented group of
employees. As a result of their efforts, and recognizing the importance of the
dividend to our shareholders, the Board was able to raise the dividend in
January 2004 for the fourth consecutive year.



CHAIRMAN'S MESSAGE

[PHOTOS]

Integrity, ethics, trust and respect form the foundation of TransCanada's good
reputation. These values constantly guide the Board, management and employees on
both the operational and governance levels. The Board's commitment to
progressive corporate governance is ongoing. This year, we:

o Continued to recognize the value of stock options as an expense in our
financial statements. o Strengthened internal controls consistent with the
requirements of the Sarbanes-Oxley Act, including certification by the Chief
Executive Officer and the Chief Financial Officer of quarterly and annual
financial statements. o Ensured the majority of directors - all but the
President and CEO - are unrelated to the company and all Board committees are
comprised entirely of unrelated directors. o Introduced stock ownership
guidelines for senior management (similar guidelines have been in place for
directors for several years). o Implemented Code of Business Ethics training for
all our employees.

Effective governance has always been a priority for TransCanada and we continue
to monitor emerging requirements in Canada and the United States. We are
committed to maintaining our leadership role and are proud to be recognized in
external surveys as one of Canada's best governed and most respected companies.

While we are confident that we have solid processes and procedures in place, the
future of TransCanada depends on our belief in ethical business practices. In a
time of increasing cynicism about the behaviour of corporate executives, we must
- and do - place ethics at the core of every decision we make. Everyone at
TransCanada is personally responsible for protecting and maintaining our
company's integrity, now and in the future.

In closing, I thank my fellow Directors for their conscientious stewardship of
TransCanada and their continued commitment to acting in the best interests of
our shareholders. Joseph Thompson will be retiring from the Board at the annual
meeting in April. A member of the TransCanada Board for more than nine years, he
has made valuable contributions to the company, particularly on the Human
Resources and Health, Safety and Environment committees, and we thank him for
his dedication.

On behalf of the Board of Directors,

/s/ R. F. Haskayne

RICHARD F. HASKAYNE  Chairman

<Page>

                                                                              5

      2003 was a year of significant accomplishment at TransCanada, financially
and strategically. We delivered a total shareholder return of 27 per cent, we
strengthened our balance sheet and we expanded our portfolio of high quality,
long life assets. The TransCanada team made significant progress towards our
goal of being the most profitable, competitive and reliable provider of natural
gas transmission and power services in North America. I thank and commend my
TransCanada colleagues for their exemplary efforts and significant successes in
2003.



LETTER TO SHAREHOLDERS

[PHOTOS]

TransCanada's 2003 financial returns were under pinned by strong operating
performances in both Gas Transmission and Power. Notwithstanding a challenging
Canadian regulatory environment, we were able to increase earnings per share by
reducing corporate costs and focusing our investment dollars on attractive
acquisitions and development opportunities.

TransCanada remains focused on selected North American gas and power markets
where our core assets, stakeholder relationships and market knowledge bring
real competitive advantage. The markets we serve will need major investments
in gas and power infrastructure over the next 10 years, and we look forward
to playing a major role in providing both investment dollars and project
expertise.

GAS TRANSMISSION  North America's natural gas producing basins will probably
deliver no better than flat production over the next decade, despite enormous
investments in drilling and field development. We foresee the continuation of
high natural gas prices for the next five to 10 years as strong markets compete
for scarce supplies of natural gas. New supplies of Northern gas and global
liquefied natural gas (LNG) will eventually help to balance the market at more
moderate prices, but those supplies will not come to market anytime soon.

The social and political challenges of large-scale gas development are
daunting. The process of securing permits and approvals for new
infrastructure is becoming evermore challenging, despite an urgent need for
more gas. The financial risks of major project development are increasing -
it is not unusual for project proponents to invest several hundred million
dollars, only to find that regulatory approval cannot be obtained within a
reasonable time frame. These are serious issues and North American consumers
will continue to pay the price if new gas infrastructure is not encouraged by
more effective regulatory processes.

Gas pipeline investments are particularly difficult in Canada where we have
learned from experience that expected rates of return can be significantly
reduced

<Page>

6  LETTER TO SHAREHOLDERS

through subsequent regulatory proceedings. TransCanada will be reluctant to make
large scale pipeline investments in Canada in future without some certainty of
long-term financial returns. We continue to work with regulators, governments
and our customers to resolve the issue of fair and sustainable returns.

TransCanada continues to plan and develop new gas infrastructure projects to
bring both Northern gas and global LNG to North American markets. In 2003,
TransCanada helped the Mackenzie Valley natural gas pipeline move forward by
providing preliminary financing for the Aboriginal Pipeline Group. In return, we
secured certain rights to increase our involvement in that project over time.

TransCanada continues to hold valid certificates to build and own the Canadian
section of an Alaska Highway gas pipeline. TransCanada is able to move Alaska
gas through western Canada and into the North American pipeline grid more cost
effectively than others - our western Canada pipeline systems can be extended
and expanded in an incremental fashion to accommodate Alaska gas. We continue to
work with Alaska producers, the U.S. and Alaska governments and other parties to
bring this enormous project to fruition. We stand ready to deliver the Canadian
portion of the Alaska Highway Pipeline project whenever our Alaska counterparts
are ready to proceed.

POWER  North American power demand has grown steadily for many decades, and we
expect demand growth to continue well into the future. Significant gas-fired
generation capacity has been added in recent years, and while specific markets
have been overbuilt, we see many opportunities in the markets we serve.

In 2003, TransCanada acquired 31.6 per cent ownership of Bruce Power, one of the
largest and most efficient power generation facilities in North America. Bruce
Power is a well managed, well run operation that will offer excellent
opportunities for incremental value creation in the years ahead.

Bruce Power recently restarted two units that had been out of service since
1997. The Bruce facility now consists of six operating reactors with aggregate
capacity of 4,660 megawatts (MW), providing approximately 20 per cent of
Ontario's power needs. The Bruce Power team performed well in dealing with
significant restart challenges and we appreciate their determined efforts.

In June, we announced an agreement with Hydro-Quebec Distribution, whereby
TransCanada will build, own and operate a 550 MW gas-fired cogeneration plant at
Becancour, Quebec. Power will be sold to Hydro-Quebec Distribution under a 20
year contract, with exhaust steam supplied to adjacent industrial facilities.

In October, we announced an agreement with an affiliate of Irving Oil to build,
own and operate a 90 MW cogeneration facility called Grandview adjacent to the
Irving Oil refinery in Saint John, New Brunswick. Our success in capturing the
Becancour and Grandview projects reflects our expertise in sophisticated
cogeneration projects.

THE YEAR AHEAD  The TransCanada team continues to pursue significant growth
opportunities, through both new project development and the acquisition of
existing assets. We are determined to capture quality opportunities and create
real value for our shareholders in 2004, while positioning our company for
significant success over the longer term.

TransCanada is committed to operational excellence in everything we do, and our
efforts will not waver in 2004. The TransCanada team has made great strides in
its quest to be the most competitive player in its chosen businesses of gas
transmission and power generation. We are a better, stronger company today than
we were a year ago, and we'll make further progress as we strive for operational
excellence in the year ahead.

We remain absolutely committed to strong financial performance and that will not
change in 2004. We have worked diligently over the past four years to restore
our financial strength - our success is evident in our stronger and cleaner
balance sheet. We now have the financial capacity to pursue and complete major
transactions. We will use that capacity when the time is right, and we will use
it wisely.

/s/ Hal Kvisle

HAL KVISLE  President and Chief Executive Officer
<Page>

MANAGEMENT'S DISCUSSION AND ANALYSIS



[GRAPHIC]



DISCIPLINED APPROACH

<Page>

     The Management's Discussion and Analysis dated February 24, 2004 should be
read in conjunction with the audited Consolidated Financial Statements of
TransCanada Corporation (TransCanada or the company) and the notes thereto for
the year ended December 31, 2003.



CONSOLIDATED FINANCIAL REVIEW

HIGHLIGHTS

EARNINGS INCREASE  TransCanada's net income from continuing operations (net
earnings) increased $54 million or seven per cent to $801 million or $1.66 per
share in 2003 compared to $747 million or $1.56 per share in 2002.

BALANCE SHEET STRENGTHENED  In 2003, TransCanada's balance sheet continued to
strengthen as shareholders' equity increased by $344 million.

DIVIDEND INCREASE  On January 27, 2004, the Board of Directors of TransCanada
raised the quarterly dividend on the company's outstanding common shares seven
per cent from $0.27 per share to $0.29 per share for the quarter ending March
31, 2004.

GROWTH IN CORE BUSINESSES  In 2003, TransCanada invested more than $1.2 billion,
including the assumption of debt, in the Gas Transmission and Power businesses.



CONSOLIDATED RESULTS-AT-A-GLANCE

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars except per share amounts)       2003       2002       2001
----------------------------------------------------------------------------------------------------------
<S>                                                                     <C>        <C>        <C>
NET INCOME/(LOSS)
Continuing operations                                                        801        747        686
Discontinued operations                                                       50         --        (67)
----------------------------------------------------------------------------------------------------------
                                                                             851        747        619
==========================================================================================================
NET INCOME/(LOSS) PER SHARE - BASIC
Continuing operations                                                   $   1.66   $   1.56   $   1.44
Discontinued operations                                                     0.10         --      (0.14)
----------------------------------------------------------------------------------------------------------
                                                                        $   1.76   $   1.56   $   1.30
==========================================================================================================
</TABLE>

Net income for the year ended December 31, 2003 of $851 million or $1.76 per
share included net income from discontinued operations of $50 million or $0.10
per share, which reflected the income recognition of $50 million of the
initially deferred gain of approximately $100 million after tax relating to
the 2001 disposition of the company's Gas Marketing business. This compares to
net income in 2002 of $747 million or $1.56 per share and net income in 2001 of
$619 million or $1.30 per share, which included a net loss from discontinued
operations of $67 million or $0.14 per share.

<Page>

                                         MANAGEMENT'S DISCUSSION AND ANALYSIS  9


SEGMENT RESULTS-AT-A-GLANCE

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)     2003      2002      2001
-----------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>
Gas Transmission                                  622       653       585
Power                                             220       146       168
Corporate                                         (41)      (52)      (67)
-----------------------------------------------------------------------------
    Continuing operations                         801       747       686
    Discontinued operations                        50        --       (67)
-----------------------------------------------------------------------------
Net Income                                        851       747       619
=============================================================================
</TABLE>

TransCanada's net earnings for the year ended December 31, 2003 were $801
million or $1.66 per share compared to $747 million or $1.56 per share in 2002
and $686 million or $1.44 per share in 2001. The increase of $54 million in
2003 compared to 2002 was due to higher net earnings from the Power business
and reduced net expenses in the Corporate segment, partially offset by lower
net earnings from the Gas Transmission business.

The increase in 2002 net earnings compared to 2001 was due to higher earnings
from the Gas Transmission business and reduced expenses in the Corporate
segment, partially offset by lower earnings from the Power segment. The Power
segment earnings in 2001 reflected the company's ability to capture significant
market opportunities created by high market prices and power price volatility.

Net earnings from the Power business for the year ended December 31, 2003
included $73 million after tax from TransCanada's investment in Bruce Power
L.P. (Bruce Power) which was acquired in February 2003 and a $19 million
positive after-tax earnings impact of a June 2003 settlement with a former
counterparty which defaulted in 2001 under power forward contracts. These
increases were partially offset by reduced operating and other income from the
Power segment's Eastern Operations, combined with higher general,
administrative and support costs.

The decrease in net expenses of $11 million in the Corporate segment in 2003
was primarily due to the positive impacts of a weaker U.S. dollar in 2003
compared to 2002.

The reduction in net earnings of $31 million in the Gas Transmission business
for the year ended December 31, 2003 compared to 2002 was primarily due to the
decline in the Alberta System's 2003 net earnings, reflecting the one-year fixed
revenue requirement settlement reached between TransCanada and its customers in
February 2003. Also, in June 2002, TransCanada received the National Energy
Board (NEB) decision on its Fair Return application (Fair Return decision) to
determine the cost of capital to be included in the calculation of 2001 and 2002
tolls on the Canadian Mainline. The results for the year ended December 31, 2002
included after-tax income of $16 million, which represents the impact of the
Fair Return decision for 2001. The 2003 results for the Gas Transmission segment
included TransCanada's $11 million share of a future income tax benefit
adjustment recognized by TransGas de Occidente S.A. (TransGas), while the 2002
results included TransCanada's $7 million share of a favourable ruling for Great
Lakes Gas Transmission Limited Partnership (Great Lakes) related to Minnesota
use tax paid in prior years.

Pursuant to a plan of arrangement, effective May 15, 2003, common shares of
TransCanada PipeLines Limited (TCPL) were exchanged on a one-to-one basis for
common shares of TransCanada. As a result, TCPL became a wholly-owned subsidiary
of TransCanada. The Consolidated Financial Statements for the year ended
December 31, 2003 include the accounts of TransCanada, the consolidated accounts
of all subsidiaries, including TCPL, and TransCanada's proportionate share of
the accounts of the company's joint venture investments. Comparative information
for the years ended December 31, 2002 and 2001 is that of TCPL, its
subsidiaries, and its proportionate share of the accounts of its joint venture
investments at that time.

<Page>

10  MANAGEMENT'S DISCUSSION AND ANALYSIS


TRANSCANADA OVERVIEW

TransCanada is a leading North American energy company focused on natural gas
transmission and power generation. At December 31, 2003, the Gas Transmission
business accounted for approximately 86 per cent and Power approximately 14 per
cent of total operating assets of $19.7 billion. In 2003, the Gas Transmission
and Power businesses delivered net earnings of $622 million and $220 million,
respectively.

The Gas Transmission and Power businesses have similar characteristics and
business drivers. Infrastructure such as natural gas pipelines and power
generation are both driven by similar supply and demand fundamentals and these
markets are highly interdependent. Both businesses are capital intensive, employ
many similar technologies and operating practices, and require financial
strength and stability to support the capital required.

GAS TRANSMISSION  The Gas Transmission segment includes the operation of four
wholly-owned regulated natural gas pipelines: the Canadian Mainline, the Alberta
System, the Foothills System and the BC System. TransCanada's investments in
Other Gas Transmission principally include the partial ownership of one Canadian
pipeline, five United States pipelines and a 33.4 per cent interest in TC
PipeLines, LP, a publicly held U.S. limited partnership of which TransCanada is
the general partner. In 2003, the Gas Transmission business transported 66 per
cent of the natural gas produced in the Western Canada Sedimentary Basin (WCSB),
65 per cent of which was exported to the U.S.

POWER  TransCanada's Power segment is primarily focused on power generation and
includes the construction, ownership, operation and management of electrical
power generation plants, with a total of 4,667 megawatts (MW) of generating
capacity. To generate electricity, the company uses various fuel sources such as
natural gas, waste heat, wood waste, coal, nuclear and hydro. TransCanada also
markets electricity in order to optimize the asset value of the company's power
generation portfolio. Power's portfolio includes eight wholly-owned plants in
operation, a 31.6 per cent equity interest in the Bruce Power nuclear facility
and the power production from two power facilities in Alberta through power
purchase arrangements (PPAs). In addition, there is one plant in the permitting
phase and another under construction. TransCanada also holds a 35.6 per cent
interest in, and is the general partner of, TransCanada Power, L.P. (Power LP),
a publicly traded limited partnership that owns seven power plants.


TRANSCANADA'S STRATEGY

TransCanada's goal is to be the most profitable, competitive and reliable
provider of natural gas transportation and power services in North America.

TransCanada has five key strategies for achieving its goal:

o  Sustain, grow and optimize the natural gas transmission business by
   connecting new WCSB supply, Northern gas and liquefied natural gas
   (LNG) to growing markets.

o  Continue to work with regulators and customers to evolve the regulated
   business model to allow TransCanada to earn competitive returns and
   compete in a North American market.

o  Grow and optimize the power business.

o  Continue to pursue an operationally excellent business model to ensure
   better, faster and cost effective delivery of natural gas and
   generation of power to customers.

o  Maintain and effectively utilize the company's strong financial
   position to capitalize on growth opportunities when they arise.


GAS TRANSMISSION

OPPORTUNITIES  North American natural gas demand is expected to grow to 85
billion cubic feet per day (Bcf/d) by 2015 from 70 Bcf/d in 2002, an increase of
21 per cent over this time period. While higher natural gas prices may result in
some demand destruction or fuel switching, TransCanada expects that in the long
term, demand for natural gas will increase substantially. Flat to slightly
increasing production is expected in existing natural gas production basins as a
result of higher natural gas prices leading to increased drilling, offset by
higher decline rates and lower initial well production rates. Overall, supply
from traditional North American basins is expected to grow by 1 Bcf/d by 2015.
These expectations indicate that North America will require substantial
incremental volumes of natural gas from non-traditional sources to meet the
increased demand. This incremental natural gas supply is expected to come from
frontier regions such as Alaska and Canada's Mackenzie Delta, as well as from
new LNG opportunities. TransCanada will continue to pursue growth of the current
infrastructure and develop new infrastructure linking new supply to growing
markets.

Today, TransCanada owns the largest pipeline network that links the WCSB with
significant growing markets in North America. In 2003, the Alberta System
gathered

<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  11


approximately 11 Bcf/d, representing 66 per cent of the natural gas produced in
the WCSB and 16 per cent of North American natural gas production. Within
Alberta, the company delivered approximately 1.6 Bcf/d. The Alberta System
connects to the Canadian Mainline, the BC System, the Foothills System and other
pipelines which collectively deliver natural gas to eastern Canada and export
natural gas to the U.S. Pacific Northwest, Midwest and Northeast.

STRATEGY  One of TransCanada's strategies is to sustain, grow and optimize its
natural gas transmission business by connecting new WCSB supply, Northern gas
and LNG to growing markets. The natural gas demand growth expected over the next
several years suggests that there will be ample opportunity to pursue this
strategy. In the short to medium term, growth is expected to come from
debottlenecking existing systems, increased ownership of partially-owned
pipelines, acquisitions of other pipeline systems and connecting new WCSB supply
to market. In the long term, TransCanada is laying the groundwork for
developing, building and operating new infrastructure to bring Northern gas and
LNG to growing markets.

TransCanada's pursuit of a role in bringing Northern gas to market is also
driven by the fact that there is excess capacity on the company's main
pipelines, the Alberta System and the Canadian Mainline. If pipelines are
built to deliver natural gas from Prudhoe Bay and the Mackenzie Delta, and
they connect to existing pipeline systems, the economic viability of
TransCanada's pipelines will be enhanced thereby benefiting TransCanada's
customers and shareholders.

2003 BUSINESS DEVELOPMENTS  In 2003, TransCanada continued to deliver on its
strategy of sustaining, growing and optimizing its Gas Transmission business and
took several steps forward in working towards the goal of bringing Northern gas
and LNG to market.

In August 2003, the company acquired the remaining interests in Foothills Pipe
Lines Ltd. and its subsidiaries (Foothills) previously not held by TransCanada.
The Foothills System, which extends more than 1,000 kilometres and carries over
30 per cent of Canadian natural gas exports to the U.S., complements
TransCanada's current western Canadian facilities. The company also increased
its ownership interest in Portland Natural Gas Transmission System Partnership
(Portland) in the Northeast U.S. to 61.7 per cent from 33.3 per cent.

The Foothills acquisition has strengthened TransCanada's position in the
potential Alaska Highway Pipeline Project. TransCanada, through Foothills, holds
certificates for both the Alaskan and Canadian segments of the Alaska Highway
Pipeline Project and also holds significant right-of-way assets for the project
in both Canada and Alaska.

In June 2003, TransCanada, the Mackenzie Delta gas producers and the Aboriginal
Pipeline Group (APG) reached a funding and participation agreement with respect
to the Mackenzie Gas Pipeline Project. TransCanada has agreed to finance the APG
for its one-third share of project definition costs in exchange for several
options, including an ownership interest in the project, certain rights of first
refusal and the right to have the Mackenzie Delta gas flow into the Alberta
System.

In September 2003, on the LNG front, TransCanada and ConocoPhillips Company
(ConocoPhillips) announced the Fairwinds partnership to jointly evaluate a
liquefied natural gas regasification facility in Harpswell, Maine. If all
approvals are received, construction of this facility could begin in 2006 and be
in operation in 2009. TransCanada also continues to pursue other LNG projects.

CHALLENGES  While several positive developments occurred in 2003, there are
challenges to the company's ability to sustain, grow and optimize the Gas
Transmission business. The nature of the Gas Transmission segment's business
risks has changed over the past several years. Two major developments in the
pipeline sector in Canada have driven these risks: an increase in competition
and essentially flat supply of natural gas from the WCSB. TransCanada faces
competition at both the supply end and the market end of the company's pipeline
systems. On the supply end, other pipelines are accessing an increasingly mature
basin. On the market end, there are other pipelines able to deliver natural gas
to markets that were historically served by TransCanada.

TransCanada's ability to grow through the acquisition of other pipeline systems
is dependent on the availability of quality pipeline assets for sale, the
strength of competitor bids and the company's ability to successfully execute
its acquisition strategy.

In the long term, TransCanada's ability to play a significant role in delivering
Northern gas to market is dependent on gas producers' willingness and ability to
commit their resources to these projects. There are

<Page>

12  MANAGEMENT'S DISCUSSION AND ANALYSIS


several factors impacting the decision to proceed with these projects, including
natural gas prices, capital cost of the pipeline, regulatory approvals, and
construction, operational and financial risk.

With increased competition and essentially flat WCSB supply, TransCanada expects
there will be little organic growth in its Canadian regulated pipelines, prior
to connecting Northern gas supplies. Since a key determinant of earnings is the
average investment base, the company also expects that in the absence of
increases in return on equity and deemed equity thickness, earnings from these
assets will decline. However, despite the potential for declining earnings, cash
flow generated from these mature assets is expected to remain strong.

CANADIAN REGULATORY DEVELOPMENTS  While natural gas supply and demand
fundamentals support TransCanada's strategy for growing and optimizing the Gas
Transmission business, its Canadian regulated pipelines continue to face the
challenges of competition, a maturing WCSB and overall low returns. These
challenges drive TransCanada's perseverance to earn higher returns and compete
in the North American market.

TransCanada's Canadian regulated assets are approximately $14 billion
representing 68 per cent of the company's total asset base at December 31, 2003.
In the short to medium term, the company's earnings from its wholly-owned
regulated pipelines is dependent not on the amount of natural gas that flows
through the pipelines but rather on the amount of capital that is invested in
the pipelines, the allowed rate of return and the deemed equity thickness. In
the long term however, as WCSB production declines and transportation tolls are
impacted, shippers are likely to be less willing to contract for natural gas
transmission services.

The NEB regulates the Canadian Mainline, the Foothills System, the BC System as
well as the Trans Quebec & Maritimes System (TQM), in which the company holds a
50 per cent ownership interest. Earnings from these pipelines are based on the
average investment base and a rate of return on a deemed common equity ratio
that is determined by the regulator. In 2003, the Canadian Mainline average
investment base was $8.6 billion and earned the NEB formula of 9.79 per cent on
a deemed common equity ratio of 33 per cent. The NEB formula that determines the
rate of return is directly linked to the long-term Canada Bond yield. This leads
to a direct correlation between earnings on the Canadian Mainline and the level
of long-term interest rates in Canada and has resulted in the rate of return
declining substantially over the past decade.

The Alberta System is regulated by the Alberta Energy and Utilities Board (EUB).
In 2003, revenue for the Alberta System was based on a negotiated settlement
with customers on the pipeline. Negotiations with shippers on the Alberta System
were significantly influenced by the 2002 NEB decision on the Canadian
Mainline's return in 2001 and 2002. As a consequence, the earnings in the
Alberta System's revenue requirement were originally anticipated to be $40
million lower than in 2002. However, incentive earnings of approximately $16
million partially offset this decrease, resulting in a $24 million decline in
earnings in 2003 from 2002 for the Alberta System. In 2003, the EUB also
approved the Alberta System 2003 Tariff Application which introduced two new
services and certain modifications to rate design.

Over the past three years, TransCanada has pursued in various regulatory
proceedings both the evolution of its regulated business model and fair returns.
In 2001, the company filed the Canadian Mainline 2001 and 2002 Fair Return
Application with the NEB. In the application, TransCanada requested the NEB to
adopt an after-tax weighted average cost of capital approach to determining
returns (instead of the NEB formula tied to interest rates) and requested a
higher return. In its June 2002 decision on this application, the NEB retained
its formula for the return calculation and increased the Canadian Mainline's
deemed common equity ratio to 33 per cent from 30 per cent. The NEB denied
TransCanada's subsequent application to review and vary the NEB's decision.
TransCanada then petitioned the Federal Court of Appeal which granted leave to
appeal. The appeal was heard in February 2004 and TransCanada awaits the
judgment.

In July 2003, the NEB issued its decision on TransCanada's 2003 Canadian
Mainline Tolls and Tariff Application. The NEB approved key components of the
application including an increase in the composite depreciation rate,
introduction of a new tolling zone, continuation of fuel incentives and an
increase in the bid floor price for interruptible service (IT). This decision
addressed key issues such as competition in the end markets of the Canadian
Mainline, disincentives for shippers to contract for firm service and the
long-term supply risks faced by the WCSB. Tolls for 2003 remain interim pending
the outcome of the appeal to the Federal Court of Appeal.

<Page>

                                         MANAGEMENT'S DISCUSSION AND ANALYSIS 13


In 2003 and early 2004, the EUB held a Generic Cost of Capital (GCOC) proceeding
in Alberta. At the conclusion of this proceeding, the EUB will determine the
rate of return on equity for 2004 and the capital structure for each utility
under its jurisdiction, including the Alberta System. It also expects to adopt a
standardized approach to determining rate of return commencing in 2005.

TransCanada filed Phase I of its Alberta System 2004 General Rate Application
(GRA) with the EUB in September 2003 and Phase II in November 2003. This is the
first GRA filed with the regulator since 1995. Between 1996 and 2003, the tolls
and services on the Alberta System were based on negotiated settlements with the
pipeline customers, which were approved by the EUB.


POWER

OPPORTUNITIES  Power demand is expected to grow at the rate of two per cent per
year in North America. TransCanada's Power segment has significant opportunities
for growth which will take place through quality acquisitions, niche development
opportunities and through the optimization of the company's power portfolio by
focusing on low-risk opportunities in known markets. Given current restrictions
on North American power transmission grids, there is also a need to build
efficient power plants that are in close proximity to demand areas.

STRATEGY  Power will continue to focus on developing and acquiring low-cost,
base load generation or plants with strong contractual underpinnings in markets
where the company has or can acquire significant knowledge and experience.
TransCanada will also grow the Power business by building plants that take
advantage of efficient cogeneration technology and serve niche markets.

TransCanada's power plants are located in several different regulatory
jurisdictions and each one has unique rules and regulations. Power markets are
regionalized and in-depth knowledge of each market is important to the success
of the operation of these assets. TransCanada has grown the Power business
significantly in Alberta, eastern Canada and the U.S. Northeast and has
developed extensive experience in these markets. TransCanada will continue to
capitalize on its market knowledge and deregulation experience to optimize the
asset value of its power portfolio through marketing activities in these
geographic areas. TransCanada will pursue operational excellence to be the most
profitable and reliable provider of power services in the markets the company
serves.

2003 DEVELOPMENTS  In 2003, TransCanada acquired a 31.6 per cent interest in
Bruce Power and announced two new cogeneration plants in Canada. The Bruce Power
investment provides TransCanada with low-cost, base load power generation in
Ontario, one of the largest markets in North America. Output from the new Quebec
and New Brunswick cogeneration facilities will be sold under long-term contracts
to creditworthy counterparties. These plants are examples of TransCanada's
ability to develop power generation in new markets and capitalize on the
company's expertise in cogeneration technology.

CHALLENGES  TransCanada's main challenges in growing its Power business include
the availability of quality acquisition opportunities, and the company's ability
to capture those opportunities and find niche markets to develop new power
plants.

Power generation is primarily a manufacturing business. TransCanada uses various
fuel sources such as natural gas, waste heat, wood waste, coal, nuclear and
hydro to generate electricity. A key success factor in any manufacturing
business is the ability to operate at the lowest cost possible. There are
several drivers of costs in the power generation business such as construction,
start-up, fuel and operating costs which TransCanada manages through its
operational excellence model. TransCanada's ability to optimize its power assets
is driven by factors such as contractual profile, plant availability,
reliability, fuel mix management and portfolio/dispatch optimization.

The power markets in North America began deregulating in the mid-1990s and the
deregulation process continues to evolve in some markets. Evolving markets can
lead to short-to medium-term uncertainty around market structure, including how
power and fuel contracts are structured. This ultimately impacts earnings
volatility. TransCanada has been successful in operating in both deregulated and
regulated markets.


TRANSCANADA - OUTLOOK

In 2004, TransCanada will continue to execute its strategy to grow and optimize
its Gas Transmission and Power businesses by redeploying its strong
discretionary cash flow.

<Page>

14  MANAGEMENT'S DISCUSSION AND ANALYSIS

In the Gas Transmission business, the company will pursue growth through the
expansion of current systems to bring new supplies to market, acquisitions of
existing pipelines, increased ownership in partially-owned pipelines and
continued efforts to bring new sources of natural gas (including Northern gas
and LNG) to growing markets. In 2004, the outcome of regulatory proceedings
could have a significant impact on the earnings of the Alberta System and
Canadian Mainline.

In the Power business, TransCanada will focus on markets in which the company
currently operates and has extensive market knowledge and deregulation
experience. The company will pursue growth of a balanced portfolio of gas-fired
and non gas-fired power plants by building, acquiring and investing in
competitive facilities. TransCanada will focus on low-cost, base load generation
or assets with strong contractual underpinnings and strive to be one of the
lowest-cost providers of power services in North America. Power projects
undertaken will benefit from and support TransCanada's strong balance sheet. In
2004, plant availability and fluctuating power prices, especially for Bruce
Power, could have a significant impact on the earnings of the Power segment.

Financial flexibility is one of the most important requirements for growing the
company. Net earnings and cash flow, combined with a strong balance sheet,
continue to provide the financial flexibility for TransCanada to make
disciplined investments in its core businesses of Gas Transmission and Power.


ACQUISITION OF GAS TRANSMISSION NORTHWEST

On February 24, 2004, TransCanada announced an agreement to acquire Gas
Transmission Northwest Corporation (GTN) from National Energy & Gas
Transmission, Inc. (NEGT) for approximately US$1.7 billion, including US$500
million of assumed debt and subject to typical closing adjustments.

GTN is a natural gas pipeline company that owns and operates two pipeline
systems - the Gas Transmission Northwest pipeline system, formerly known as
Pacific Gas Transmission, and the North Baja Pipeline system.

The Gas Transmission Northwest pipeline system consists of more than 2,174
kilometres of pipeline extending from a point near Kingsgate, British Columbia,
on the B.C.-Idaho border, to a point near Malin, Oregon on the Oregon-California
border. The natural gas transported on this pipeline originates primarily from
supplies in Canada for customers located in the Pacific Northwest, Nevada and
California.

The North Baja pipeline is a 128 kilometre system. It extends from a point near
Ehrenberg, Arizona to a point near Ogilby, California on the California-Baja
California, Mexico border. The natural gas transported on this system comes
primarily from supplies in the southwestern U.S. for markets in Northern Baja
California, Mexico. The sale of the North Baja pipeline is subject to a right of
first refusal by another company.

NEGT voluntarily filed for protection under Chapter 11 of the U.S. Bankruptcy
Code in July 2003. As a result, the sale of GTN to TransCanada will be subject
to bankruptcy court approval, and will include a court-sanctioned auction
process in accordance with customary bidding procedures approved by the
bankruptcy court. Under a court-sanctioned auction, NEGT will seek offers that
are higher or otherwise better than that which has been negotiated with
TransCanada. As part of its agreement, TransCanada is granted certain
protections, subject to court approval, most notably a break fee and expense
reimbursement if another bid is accepted. TransCanada also retains the right to
amend its offer should NEGT receive an offer which is superior to its existing
agreement with TransCanada. The agreement contemplates that final bankruptcy
court approval of the sale will be obtained within 75 days after signing of the
agreement. The agreement also contemplates bankruptcy court approval of the NEGT
Plan of Reorganization. Approval of NEGT's Plan could occur at a date later than
the receipt of court approval of the sale. The sale is also subject to
anti-trust review.

TransCanada will finance the acquisition in a manner consistent with maintaining
its solid financial position and credit ratings. This could include use of
internally generated cash flow, draws on committed credit lines, issuance of
debt and/or equity under the Canadian and U.S. shelf prospectuses, and/or the
sale of certain assets within the company's existing portfolio.
<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  15


     TransCanada's strategy is to sustain, grow and optimize its natural gas
transmission business. The growth in natural gas demand expected over the next
several years suggests that there will be ample opportunities to do so.



GAS TRANSMISSION

HIGHLIGHTS

EARNINGS  Net earnings from Gas Transmission decreased $31 million to $622
million in 2003 compared to $653 million in 2002. This decrease is a result of
reduced earnings of $38 million from Wholly-Owned Pipelines partially offset by
increased earnings of $7 million from Other Gas Transmission.

ALBERTA SYSTEM  In February 2003, a one-year Alberta System Revenue Requirement
Settlement (the 2003 Settlement) was reached for 2003 with Alberta System
customers. Earnings in 2003 were initially expected to decrease by approximately
$40 million relative to 2002 earnings of $214 million. However, incentive
earnings realized primarily from lower financing and operating costs partially
offset the expected reduction in earnings.

CANADIAN MAINLINE  In July 2003, the NEB issued its decision on TransCanada's
2003 Canadian Mainline Tolls and Tariff Application. In its decision, the NEB
approved all of the key components of the application including an increase in
the composite depreciation rate to 3.42 per cent from 2.89 per cent,
introduction of a new tolling zone in southwestern Ontario, an increase to the
IT bid floor price and the continuation of the Fuel Gas Incentive Program.
Earnings in 2003 reflect, along with incentive earnings from approved programs,
return on equity based on the NEB formula and 33 per cent deemed common equity.

FOOTHILLS SYSTEM  In August 2003, TransCanada acquired the remaining interests
in Foothills previously not held by the company. This acquisition has
strengthened TransCanada's position in the potential Alaska Highway Pipeline
Project and increased the likelihood that such a project would connect with
TransCanada's existing infrastructure.

OTHER GAS TRANSMISSION  In 2003, TransCanada increased its ownership interest in
Portland to 61.7 per cent from 33.3 per cent through two separate transactions.
This increase in ownership, in conjunction with the impact of Portland's 2003
rate settlement, resulted in increased net earnings to TransCanada.
TransCanada's investment in TransGas also generated higher net earnings in 2003.
Net earnings from Other Gas Transmission in 2003 were negatively impacted by
U.S. dollar currency movements, as the majority of earnings in this business are
denominated in U.S. dollars. Iroquois Gas Transmission System (Iroquois) placed
its Eastchester expansion facilities into service in February 2004.

<Page>

16

NATURAL GAS TRANSMISSION

[MAP]


ALBERTA SYSTEM  TransCanada's 100 per cent owned natural gas transmission system
in Alberta gathers natural gas for use within the province and delivers it to
provincial boundary points for connection with the Canadian Mainline, BC System,
Foothills System and other pipelines. The 22,700 kilometre system is one of the
largest carriers of natural gas in North America.

CANADIAN MAINLINE  TransCanada's 100 per cent owned natural gas transmission
system in Canada extends 14,900 kilometres from the Alberta/Saskatchewan border
east to Quebec/Vermont and connects with other natural gas pipelines in Canada
and the U.S.

BC SYSTEM  TransCanada's 100 per cent owned natural gas transmission system
extends 200 kilometres from Alberta's western border through B.C. to the U.S.
border, serving markets in B.C. as well as the Pacific Northwest, California and
Nevada.

FOOTHILLS SYSTEM  TransCanada's 100 per cent owned 1,040 kilometre natural gas
transmission system in western Canada carries natural gas for export from
central Alberta to the U.S. border to serve markets in the U.S. Midwest, Pacific
Northwest, California and Nevada.

VENTURES LP  Ventures LP, 100 per cent owned by TransCanada, owns a
121 kilometre pipeline and related facilities which supply natural gas to the
oil sands region of northern Alberta, and a 27 kilometre pipeline which supplies
natural gas to a petrochemical complex at Joffre, Alberta.

GREAT LAKES  Great Lakes connects with the Canadian Mainline at Emerson,
Manitoba and serves markets in central Canada and the eastern and midwestern
U.S. TransCanada has a 50 per cent ownership interest in this 3,387 kilometre
pipeline system.

TQM  TQM is a 572 kilometre natural gas pipeline system which connects with the
Canadian Mainline and transports natural gas from Montreal to Quebec City and to
the Portland system. TransCanada holds a 50 per cent ownership interest in TQM.

<Page>

                                         MANAGEMENT'S DISCUSSION AND ANALYSIS 17


TRANSMISSION RESULTS-AT-A-GLANCE

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)             2003     2002     2001
-----------------------------------------------------------------------------------
<S>                                                      <C>      <C>      <C>
WHOLLY-OWNED PIPELINES
   Alberta System                                         190      214      204
   Canadian Mainline                                      290      307      274
   Foothills System (1)                                    20       17       20
   BC System                                                6        6        5
-----------------------------------------------------------------------------------
                                                          506      544      503
-----------------------------------------------------------------------------------
OTHER GAS TRANSMISSION
   Great Lakes                                             52       66       56
   Iroquois                                                18       18       16
   TC PipeLines, LP                                        15       17       15
   Portland (2)                                            11        2       (1)
   Ventures LP                                             10        7        3
   TQM                                                      8        8        8
   CrossAlta                                                6       13        8
   TransGas                                                22        6       --
   Northern Development                                    (4)      (6)      (9)
   General, administrative, support and other             (22)     (22)     (14)
-----------------------------------------------------------------------------------
                                                          116      109       82
-----------------------------------------------------------------------------------
Net earnings                                              622      653      585
===================================================================================
</TABLE>

(1)  The remaining ownership interests in Foothills previously not held by
     TransCanada were acquired on August 15, 2003. Amounts in this table reflect
     TransCanada's proportionate interest in Foothills' earnings prior to
     acquisition and 100 per cent interest thereafter.

(2)  TransCanada increased its ownership interest in Portland to 43.4 per cent
     from 33.3 per cent in September 2003 and to 61.7 per cent from 43.4 per
     cent in December 2003. Amounts in this table reflect TransCanada's
     proportionate earnings from Portland including a 33.3 per cent ownership
     interest from June 2001 to September 2003, and a 21.4 per cent ownership
     interest prior to June 2001.


IROQUOIS  Iroquois connects with the Canadian Mainline near Waddington, New York
and delivers natural gas to customers in the northeastern U.S. TransCanada has a
41 per cent ownership interest in this 663 kilometre pipeline system.

PORTLAND  Portland operates a 471 kilometre pipeline that connects with TQM near
East Hereford, Quebec and delivers natural gas to customers in the northeastern
U.S. As at December 31, 2003, TransCanada had a 61.7 per cent ownership interest
in Portland.

NORTHERN BORDER  Northern Border is a 2,010 kilometre natural gas pipeline
system which serves the U.S. Midwest from a connection with the Foothills
System. TransCanada indirectly owns approximately 10 per cent of Northern
Border through its 33.4 per cent ownership interest in TC PipeLines, LP.

TUSCARORA  Tuscarora operates a 386 kilometre pipeline system transporting
natural gas from Malin, Oregon to Wadsworth, Nevada with delivery points in
northeastern California. TransCanada owns an aggregate 17.4 per cent interest in
Tuscarora, of which 16.4 per cent is held through TransCanada's interest in TC
PipeLines, LP.

CROSSALTA  CrossAlta Gas Storage & Services Ltd. (CrossAlta) is an underground
natural gas storage facility connected to the Alberta System and is located near
Crossfield, Alberta. CrossAlta has a working natural gas capacity of 40 billion
cubic feet (Bcf) with a maximum deliverability capability of 410 million cubic
feet per day (MMcf/d). TransCanada holds a 60 per cent ownership interest in
CrossAlta.

TRANSGAS  TransGas is a 344 kilometre natural gas pipeline system which runs
from Mariquita in the central region of Colombia to Cali in the southwest of
Colombia. TransCanada holds a 46.5 per cent interest in this pipeline.

<Page>

18  MANAGEMENT'S DISCUSSION AND ANALYSIS


In 2003, net earnings from the Gas Transmission business were $622 million,
compared to $653 million and $585 million in 2002 and 2001, respectively. The
decrease in 2003 compared to 2002 was mainly due to lower net earnings from
Wholly-Owned Pipelines, partially offset by higher net earnings from Other Gas
Transmission. The 2003 decrease in Wholly-Owned Pipelines' net earnings was
primarily due to a reduction in the Alberta System's net earnings reflecting the
2003 Settlement. Further, earnings on the Canadian Mainline were lower in 2003
compared to 2002 due to recognition in June 2002 of the 2001 earnings impact
resulting from the Fair Return decision. Higher 2003 net earnings from Other Gas
Transmission were primarily due to increased earnings from TransGas and
Portland. The increase in 2002 earnings over 2001 was mainly due to the Fair
Return decision, higher incentive earnings from Wholly-Owned Pipelines and
higher earnings from TransCanada's investment in Great Lakes.


WHOLLY-OWNED PIPELINES - FINANCIAL REVIEW

ALBERTA SYSTEM  Net earnings of $190 million in 2003 were $24 million lower than
2002 and $14 million lower than 2001. The decrease compared to 2002 and 2001 was
primarily due to lower earnings resulting from the 2003 Settlement reached
between TransCanada and its customers in February 2003. The 2003 Settlement
included a fixed revenue requirement component, before non-routine adjustments,
of $1.277 billion compared to $1.347 billion in 2002 and $1.390 billion in 2001.
The company initially expected the lower negotiated 2003 revenue requirement
would reduce 2003 earnings by approximately $40 million relative to 2002.
However, higher incentive earnings were realized in 2003, primarily from lower
financing and operating costs which partially offset the expected reduction.

The Alberta System is one of the largest volume carriers of natural gas in North
America and delivered 3,883 Bcf of natural gas in 2003, compared to deliveries
of 4,146 Bcf in 2002 and 4,059 Bcf in 2001. The volumes transported by the
Alberta System in 2003 represented approximately 16 per cent of total North
American natural gas production and 66 per cent of the natural gas produced in
the WCSB.

The Alberta System is regulated by the EUB primarily under the provisions of the
Gas Utilities Act (Alberta) (GUA) and the Pipeline Act (Alberta). Under the GUA,
the rates, tolls and other charges, and terms and conditions of service are
subject to approval by the EUB.

CANADIAN MAINLINE  The Canadian Mainline generated net earnings of $290 million
in 2003, a decrease of $17 million compared to 2002 and an increase of $16
million over 2001 earnings. The decrease in net earnings in 2003 from 2002 and
the increase in net earnings from 2001 to 2002 was primarily due to recognition
of incremental earnings for 2001 and 2002 as a result of the NEB's Fair Return
decision in June 2002. This decision included an increase in the deemed common
equity ratio to 33 per cent from 30 per cent, effective January 1, 2001, and
resulted in additional net earnings of $16 million for the year ended December
31, 2001, that the company recognized in June 2002. Net earnings in 2003 also
reflect the continued decrease in average investment base. These factors were
partially offset by an increase in the NEB-approved rate of return on common
equity to 9.79 per cent in 2003 from 9.53 per cent in 2002. The increase in 2003
earnings relative to 2001 is primarily due to the NEB's Fair Return decision
which provided for an increase in deemed common equity to 33 per cent.


Alberta System Net Earnings
(millions of dollars)

<TABLE>
<S>  <C>
03   190
02   214
01   204
</TABLE>


Alberta System Average
Investment Base
(millions of dollars)

<TABLE>
<S>  <C>
03   4,878
02   5,074
01   5,183
</TABLE>


Alberta System Throughput
Volumes (Bcf)

<TABLE>
<S>  <C>
03   3,883
02   4,146
01   4,059
</TABLE>


Alberta System
Capital Expenditures
(millions of dollars)

<TABLE>
<S>  <C>
03    53
02   165
01   127
</TABLE>

<Page>
                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  19


Annual deliveries of natural gas on the Canadian Mainline totalled 2,628 Bcf in
2003, compared to 2,630 Bcf in 2002 and 2,450 Bcf in 2001. In 2003, deliveries
to export border points comprised 51 per cent of total deliveries compared to 53
per cent in 2002 and 50 per cent in 2001.

The Canadian Mainline is regulated by the NEB. The NEB sets tolls, which provide
TransCanada the opportunity to recover projected costs of transporting natural
gas and also provide a return on the Canadian Mainline average investment base.
New facilities are approved by the NEB before construction begins. Changes in
investment base, the rate of return on common equity, the level of deemed common
equity and the potential for incentive earnings affect the net earnings of the
Canadian Mainline.


WHOLLY-OWNED PIPELINES - DEVELOPMENTS

REGULATORY  In 2003, TransCanada focused much of its efforts on the evolution of
its regulated business model. This evolution includes proposed changes to
TransCanada's Canadian regulated pipeline business that would provide the
company an opportunity to earn a competitive return and enhance its ability to
compete for future market demand and natural gas supply while bringing benefits
to customers. This regulated business model is intended to advance TransCanada's
rate and service offerings on all four of the company's wholly-owned pipelines.

In 2003, TransCanada's activities included its appeal of the NEB's Fair Return
Review and Variance decision, the EUB's GCOC Proceeding, preparation of the 2004
Mainline Tolls and Tariff Application, the Alberta System's 2004 GRA, the
Alberta System 2003 Tariff Application which was approved by the EUB and
continued discussion with industry stakeholders.

In February 2003, the NEB denied the request TransCanada made in September 2002
for a Review and Variance of the Fair Return decision. TransCanada maintains
that the Fair Return decision issued in June 2002 does not recognize the
long-term business risks of the Canadian Mainline. The company ultimately
initiated an appeal of the NEB's decision not to review and vary the Fair Return
decision, with the Federal Court of Appeal. In May 2003, the Federal Court of
Appeal granted TransCanada leave to appeal the NEB's February 2003 decision. The
appeal was heard in February 2004 and TransCanada awaits the judgment.

The NEB hearing for TransCanada's 2003 Canadian Mainline Tolls and Tariff
Application began in February 2003. In its July 2003 decision on the
application, the NEB approved all key components of the application including an
increase in the composite depreciation rate to 3.42 per cent from 2.89 per cent,
the introduction of a new tolling zone in southwestern Ontario, an increase to
the IT bid floor price and the continuation of the Fuel Gas Incentive Program.
The 2003 tolls resulting from this decision are interim pending the disposition
of TransCanada's appeal to the Federal Court of Appeal regarding the NEB's
Review and Variance decision.

In July 2003, TransCanada, along with other utilities, filed evidence in the
EUB's GCOC Proceeding. In this application, TransCanada requested a return of 11
per cent on a deemed common equity of 40 per cent for the Alberta System in
2004. The EUB expects to adopt a standardized approach to determining the rate
of return and capital structure for all utilities under its jurisdiction at the
conclusion of this proceeding. Oral testimony in the hearing concluded January
16, 2004. Written argument and reply argument are to follow with an EUB decision
expected in third quarter 2004.


Canadian Mainline Net Earnings
(millions of dollars)

<TABLE>
<S>  <C>
03   290
02   307
01   274
</TABLE>


Canadian Mainline Average
Investment Base
(millions of dollars)

<TABLE>
<S>  <C>
03   8,565
02   8,884
01   9,176
</TABLE>


Canadian Mainline
Throughput Volumes (Bcf)
(millions of dollars)

<TABLE>
<S>  <C>
03   2,628
02   2,630
01   2,450
</TABLE>


Canadian Mainline
Capital Expenditures
(millions of dollars)

<TABLE>
<S>  <C>
03   48
02   57
01   97
</TABLE>

<Page>

20  MANAGEMENT'S DISCUSSION AND ANALYSIS


In September 2003, TransCanada filed with the EUB Phase I of the Alberta
System's 2004 GRA, consisting of evidence in support of the applied-for rate
base and revenue requirement. The company applied for a composite depreciation
rate of 4.13 per cent compared to the current depreciation rate of 4.00 per
cent. In November 2003, the company filed Phase II of the application, which
primarily deals with rate design and services. EUB hearings to consider the 2004
GRA Phase I and Phase II applications are scheduled to commence, in Calgary, on
April 1, 2004 and June 1, 2004, respectively.

The Canadian Mainline 2004 Tolls and Tariff Application was filed with the
NEB on January 26, 2004. In this application, TransCanada requested a Fuel
Gas Incentive Program, establishment of a new non-renewable firm
transportation (FT) service, modifications to the existing short-term FT
service and recovery of costs of service including an 11 per cent return on
deemed common equity of 40 per cent.

OPERATIONAL EXCELLENCE  TransCanada continued its commitment to operational
excellence in 2003 by advancing initiatives that will improve the company's
ability to provide low-cost, reliable and responsive service to customers.
TransCanada continues to pursue this strategy in order to become the preferred
company that customers choose to connect new gas supplies and markets.

In 2003, TransCanada exceeded its performance targets of reducing operating and
maintenance costs by rationalizing maintenance and streamlining the delivery of
services. The company met ongoing goals in the management of greenhouse gases.
TransCanada also achieved exceptional plant operating performance, as measured
by the number of operational perfect days on both the Alberta System and the
Canadian Mainline. Also in 2003, TransCanada improved customer satisfaction with
implementation of new systems to consolidate and enhance management of customer
transactions. Customer feedback indicates this system improvement was very well
received.

In 2004, TransCanada will continue to focus efforts on cost reduction,
operational reliability, and environmental and safety performance. The company
has established 2004 operating and maintenance budgets with an expectation of
further productivity gains, while operating reliability targets have increased
and greenhouse gas emissions management programs continue to receive focused
attention. Additional effort will be undertaken in 2004 with respect to
improving contractor safety performance.

SUPPLY  In 2003, TransCanada continued to connect incremental natural gas supply
in the WCSB, in Alberta and from B.C. Additional production from the Sierra area
of B.C. is expected to commence delivery to Alberta in early 2004.

The timely connection of these volumes has allowed TransCanada's customers to
take advantage of premium gas price environments. TransCanada will continue to
grow by seeking new opportunities to connect additional gas supplies.

MARKETS  TransCanada continues to pursue growth opportunities within existing
and new natural gas markets. In 2003, TransCanada took steps to expand its
pipeline system in western Canada through the pending acquisition of the Simmons
Pipeline System, via the execution of a long-term transportation service
arrangement with TransCanada Pipeline Ventures Limited Partnership (Ventures LP)
and through expansion of the Alberta System. These arrangements, upon regulatory
approval expected in 2004, will allow TransCanada to increase the company's
delivery capacity into the rapidly expanding area of Fort McMurray, Alberta to
approximately 700 MMcf/d.

TransCanada also continues to pursue increased deliveries in response to market
growth in both Canada and the U.S. While customers have been repositioning their
pipeline contracts away from long haul arrangements originating in Alberta to
short haul contracts originating at local market hubs, the underlying markets
continue to grow.

FOOTHILLS ACQUISITION  In August 2003, TransCanada acquired the remaining
interests in Foothills previously not held by the company for $259 million,
including assumption of $154 million of Foothills' debt. As a result,
TransCanada now owns 100 per cent of Foothills. Foothills and its subsidiaries
hold the certificates to build the Canadian portion of the Alaska Highway
Pipeline Project which would bring Prudhoe Bay natural gas from Alaska to
markets in Canada and the U.S. The "prebuild" portion of this project has been
operating for more than 20 years, moving Alberta natural gas to U.S. markets in
advance of flows from Alaska. Subsidiaries of Foothills and TransCanada also
hold certificates to build the Alaskan section of this project.

<Page>
                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  21


WHOLLY-OWNED PIPELINES - OUTLOOK

TransCanada's Gas Transmission business has a long history of providing pipeline
capacity to markets and connecting natural gas supply for the company's
customers. As the marketplace has evolved and competition has grown, the
Wholly-Owned Pipelines have focused on providing market-responsive products and
services, competitive cost-effective structures, and the highest levels of
reliability to customers.

In 2004, the Wholly-Owned Pipelines will continue to focus on achieving
additional efficiency improvements in all aspects of the business by maintaining
focus on operational excellence and leveraging technological advancements.
TransCanada will also continue to work collaboratively with all stakeholders in
resolving jurisdictional issues, advancing changes to the regulated business
model and addressing fair return challenges.

Looking forward, as the supply/demand balance tightens, producers will continue
to explore and develop new fields, as well as unconventional supply such as gas
production from coal bed methane reserves. In addition, stakeholder support is
expected to grow for proposals to access Northern gas from the Mackenzie Delta
and Alaska North Slope. TransCanada will seek to connect these additional
natural gas supplies to the Alberta System.

TransCanada's earnings from its Wholly-Owned Pipelines are primarily determined
by the average investment base, return on common equity, deemed common equity
and opportunity for incentive earnings. In the short to medium term, the company
expects modest growth from these mature assets and therefore anticipates
continued decline in the average investment base. Accordingly, without an
increase to return on equity, deemed common equity, or incentive opportunities,
future earnings are anticipated to decrease. However, these mature assets will
continue to generate strong cash flows that can be redeployed to other projects
offering higher returns. Under the current regulatory model, earnings from the
Wholly-Owned Pipelines are not affected by short-term fluctuations in the
commodity price of natural gas, changes in throughput volumes or changes in FT
contract levels.

EARNINGS  In 2004, net earnings from Wholly-Owned Pipelines will depend in large
part on the outcome of the appeal of the NEB's Fair Return Review and Variance
decision, the EUB's GCOC hearing, the 2004 Mainline Tolls and Tariff Application
and the Alberta System's 2004 GRA. In the absence of favorable rulings in these
applications, the company expects 2004 earnings to be lower compared to 2003
earnings, primarily due to the combined effect of a decrease in rate of return
on common equity in 2004 (Canadian Mainline 2003 - 9.79 per cent versus 2004 -
9.56 per cent based on the NEB formula) and lower average investment bases.
Although 2004 earnings may be lower than 2003 earnings, Wholly-Owned Pipelines
will continue to generate strong cash flow.

CAPITAL EXPENDITURES  Total capital spending for the Alberta System, Canadian
Mainline and BC System during 2003 was approximately $100 million. Capital
spending in 2004, including the Foothills System, is expected to approximately
double the expenditures in 2003, primarily due to higher capacity capital
spending.


WHOLLY-OWNED PIPELINES - BUSINESS RISKS

COMPETITION  TransCanada faces competition at both the supply end and the market
end of its systems. The competition is a result of other pipelines accessing an
increasingly mature WCSB. The construction of the Alliance Pipeline, a natural
gas pipeline from northeast B.C. to the Chicago area, and the continued
expiration of transportation contracts have resulted in significant reductions
in firm contracted capacity on both the Alberta System and the Canadian
Mainline. The Canadian Mainline absorbs the bulk of any volume swings in the
WCSB.

As of December 2002, the WCSB had estimated remaining discovered natural gas
reserves of 57 trillion cubic feet and a reserves-to-production ratio of
approximately nine years at current levels of production. Additional reserves
are continually being discovered to maintain the reserves-to-production ratio at
close to nine years. Natural gas prices in the future are expected to be higher
than long-term historical averages due to a tighter supply/demand balance which
should stimulate exploration and production in the WCSB. However, the WCSB
supply is expected to remain essentially flat.

<Page>

22  MANAGEMENT'S DISCUSSION AND ANALYSIS


TransCanada's Alberta System provides the major natural gas gathering and export
transportation capacity for the WCSB. It does so by connecting to most of the
gas processing plants in Alberta and then transporting natural gas for domestic
and export deliveries. The Alberta System faces competition primarily from the
Alliance Pipeline. In addition, the Alberta System has faced, and will continue
to face, increasing competition from other pipelines.

The Canadian Mainline is TransCanada's cross-continent natural gas pipeline
serving mid-western and eastern markets in Canada and the U.S. TransCanada
continues to face competition for transportation services to eastern Canadian
markets and U.S. export points. The demand for natural gas in TransCanada's key
eastern markets is expected to continue to increase, particularly to meet the
expected growth in gas-fired power generation. Although there are opportunities
to increase market share in Canadian and U.S. export markets, TransCanada faces
significant competition in these regions. Consumers in the U.S. Northeast have
access to an array of pipeline and supply options. Eastern Canadian markets that
have historically received Canadian supplies only from TransCanada are capable
of receiving supplies from new pipelines into the region that can source both
western Canadian and U.S. supplies.

The Canadian Mainline has experienced reductions in long haul FT contracts for
deliveries originating at the Alberta border and in Saskatchewan of
approximately 2.5 Bcf/d, or approximately 36 per cent of its capacity since the
1998/1999 contract year. Looking forward, in the short to medium term, there is
limited opportunity to reduce tolls by increasing long haul volumes on the
Canadian Mainline. The utilization of the Canadian Mainline is not expected to
increase in the short to medium term as any additional supply from the WCSB is
expected to be absorbed by demand growth within western Canada and by higher
flows on other pipeline systems.

TransCanada will continue to work with stakeholders in 2004 to advance various
aspects of the company's regulated business model for the Alberta System,
Canadian Mainline, Foothills System and the BC System.

FINANCIAL RISK  The company remains concerned about the long-term implications
of a financial return that discourages additional investment in existing
Canadian natural gas transmission systems. TransCanada has applied for a return
of 11 per cent on 40 per cent deemed common equity, both to the NEB in the 2004
Mainline Tolls and Tariff Application and to the EUB in the Alberta System's
application in the GCOC Proceeding. The outcome of the Federal Court of Appeal
hearing regarding the NEB's Review and Variance decision as well as the GCOC
proceeding, could have a significant impact on the financial returns for, and
future investment in, TransCanada's Canadian pipelines.

The company is cognizant of the views and shares the concerns of credit rating
agencies regarding the Canadian regulatory environment. Credit ratings and
liquidity have risen to the forefront of investor attention. In light of the
developments in the Canadian regulatory environment, there exists a view that
current Canadian regulatory policy is eroding the credit worthiness of utilities
which, over the long term, could make it increasingly difficult for utilities to
access capital on reasonable terms.

SAFETY  TransCanada worked closely with regulators, customers and communities
during 2003 to ensure the continued safety of employees and the public. In 2003,
two line breaks occurred in a remote area of Alberta resulting in a short-term
reduction in natural gas shipments. Neither incident resulted in injuries or
damage to public property. Under the current regulatory models, expenditures on
pipeline integrity have no negative impact on earnings. The company expects to
spend approximately $76 million in 2004 on pipeline integrity compared to $73
million in 2003. TransCanada continues to use a rigorous risk management system
that focuses spending on issues and areas that have the largest impact on
maintaining or improving the reliability and safety of the pipeline system.

ENVIRONMENT  In 2003, TransCanada continued to conduct activities to increase
environmental protection through proactive sampling, remediation and monitoring
programs. Compressor stations on the Canadian Mainline have been assessed
through the company's Site Assessment, Remediation & Monitoring (SARM) program.
In 2003, approximately $5 million

<Page>
                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  23


was invested in improved environmental protection measures at identified
TransCanada locations. This program of actively assessing and addressing
environmental issues will continue into the future. In addition, the
decommissioning of six Canadian Mainline compressor plants and four Alberta
sites was undertaken in 2003, effectively remediating each site.

For information on management of risks with respect to the Gas Transmission
business, please see the Risk Management section beginning on page 46 of this
Annual Report.

OTHER GAS TRANSMISSION - FINANCIAL REVIEW

Other Gas Transmission is comprised of TransCanada's direct and indirect
investment in various natural gas pipelines and gas transmission related
businesses. It also includes project development activities related to
TransCanada's pursuit of new natural gas pipeline and gas transmission related
opportunities throughout North America, including the North and LNG.

TransCanada's net earnings from Other Gas Transmission in 2003 were $116 million
compared to $109 million and $82 million in 2002 and 2001, respectively. The
increased net earnings of $7 million in 2003 compared to 2002 were due to higher
earnings from TransGas as a result of recognition of an adjustment for future
income tax benefits of $11 million and higher contractual tolls in 2003. In
addition, earnings from Portland were higher compared to 2002 due to the impacts
of a rate settlement in early 2003 and TransCanada increasing its ownership
interest in 2003. Earnings from Ventures LP was also higher due to higher
contracted transportation volumes. These increases were partially offset by the
impact of a substantially weaker U.S. dollar, higher project development costs
and lower earnings from CrossAlta due to lower storage margins as a result of
unfavourable market conditions. In addition, 2002 earnings included
TransCanada's $7 million share of a favourable ruling for Great Lakes related to
Minnesota use tax paid in prior years.

Other Gas Transmission net earnings of $109 million in 2002 increased by $27
million compared to 2001. This increase resulted from higher earnings from U.S.
investments which included TransCanada's $7 million share of the favourable
ruling for Great Lakes related to Minnesota use tax paid in prior years,
increased ownership interests in Iroquois and Portland acquired in mid-2001,
higher transportation margins and favourable movements in exchange rates.
Earnings from CrossAlta were also higher due to higher storage margins,
increased storage capacity and reduced operating expenses. In addition, there
was reduced spending on Northern Development in 2002 and increased earnings from
Ventures LP.


OTHER GAS TRANSMISSION - DEVELOPMENTS

In 2003, TransCanada increased its ownership interest in Portland, secured a
position in the Mackenzie Gas Pipeline Project and pursued LNG projects by
conducting preliminary assessments of LNG facilities in the Northeast U.S. and
eastern Canada.

TC PIPELINES, LP  TransCanada holds a 33.4 per cent interest in TC PipeLines, LP
that in turn holds a 30 per cent interest in Northern Border Pipeline Company
(Northern Border) and a 49 per cent interest in Tuscarora Gas Transmission
Company (Tuscarora). In July 2003, TC PipeLines, LP increased its quarterly
distribution to US$0.55 per unit from US$0.525 per unit. This represents the
fourth increase in the partnership's quarterly cash distribution since the
commencement of operations in May 1999.

In December 2003, Tuscarora received management approval for an expansion
project which will provide for approximately 57 MMcf/d of incremental capacity
on its system. Total capital cost is estimated to be approximately US$16.6
million, and the expansion is scheduled to commence service in November 2005.

IROQUOIS  The Eastchester expansion project experienced several delays
throughout 2003 primarily due to construction complications. However, by the end
of 2003, Iroquois had successfully resolved the majority of these construction
issues and placed the expansion facilities into service in February 2004. The
expansion is the first major natural gas transmission pipeline to be built into
New York City in approximately 40 years.

In October 2003, the Federal Energy Regulatory Commission (FERC) approved
Iroquois' mainline rate settlement, which was filed in August 2003. The
settlement is effective from January 1, 2004 through

<Page>

24  MANAGEMENT'S DISCUSSION AND ANALYSIS


December 2007, during which period Iroquois will reduce rates by approximately
13 per cent. The settlement does not establish rates, terms or conditions for
the Eastchester expansion, which was covered by a separate rate application
filed with the FERC in January 2004. The FERC has issued an order that accepts
Iroquois' application effective July 1, 2004 subject to refund and conditions,
and establishing hearing procedures.

PORTLAND  In September 2003, the company purchased an additional 10.1 per cent
ownership interest in Portland for approximately US$47 million, including
assumed debt of approximately US$28 million. In December 2003, the company
purchased a further 18.3 per cent interest for approximately US$82 million,
including assumed debt of approximately US$50 million, thus increasing its total
ownership interest in Portland to 61.7 per cent. Subsequent to this acquisition,
Portland was fully consolidated in the company's financial statements, with 38.3
per cent reflected in non-controlling interests.

Portland and customer representatives reached an agreement on new tolls and FERC
approved it in its entirety in January 2003. The agreement is effective from
April 1, 2002 through April 1, 2008. Lower depreciation rates and revised tolls
provided for in the agreement have had a positive impact on Portland's earnings
in 2003.

TQM  In January 2003, TransCanada began performing the majority of operational
and administrative activities for TQM to allow TQM to benefit from best
practices employed in the industry at the lowest possible cost. As a result of
this reorganization, TQM has realized cost savings, which, in accordance with
its incentive agreement, will be shared among its customers and owners.

NORTHERN DEVELOPMENT  In 2003, TransCanada continued to pursue pipeline
opportunities to move both Mackenzie Delta and Alaska North Slope natural gas to
markets throughout North America. TransCanada worked with key stakeholders with
the objective of participating in any potential pipeline project.

TransCanada, the Mackenzie Delta gas producers and the APG reached funding and
participation agreements in June 2003 that enable the APG to become a full
participant in the proposed Mackenzie Gas Pipeline Project. This project would
result in a natural gas pipeline being constructed from Inuvik, Northwest
Territories to the northern border of Alberta, where it would then connect with
the Alberta System. TransCanada has agreed to finance the APG for its one-third
share of project definition costs. This share is currently expected to be
approximately $90 million over three years. This loan will be repaid from the
APG's share of future pipeline revenues. In the year ended December 31, 2003,
TransCanada funded $34 million of this loan. Under the terms of the agreement,
TransCanada gains an immediate opportunity to acquire up to five per cent equity
ownership of the pipeline at the time of construction. In addition, TransCanada
also gains certain rights of first refusal to acquire 50 per cent of any
divestitures of existing partners and an entitlement to obtain a one-third
interest in all expansion opportunities once the APG reaches a one-third share,
with the producers and the APG sharing the balance.

TransCanada continued to work with the Alaska Highway Pipeline stakeholders in
2003 to advance that project. Resolution of Foothills' Special Charge was
reached with Foothills shippers and the Canadian Association of Petroleum
Producers, and subsequently approved by the NEB, in March 2003. The resolution
waives Foothills' obligation to repay all past and future Special Charge
collections when Alaskan gas starts flowing on the Foothills System. In October
2003, the Government of Canada, once again, reaffirmed its preference to utilize
the framework provided in the Northern Pipeline Act which granted Foothills the
certificates to transport Alaskan gas across Canada. In January 2004, Foothills
and the Kaska First Nation signed an Agreement-in-Principle that provides the
framework for a future participation agreement. The Agreement-in-Principle marks
the completion of the second stage of negotiations that is expected to lead to a
participation agreement for the Alaska Highway Pipeline Project.

LIQUEFIED NATURAL GAS  In September 2003, TransCanada and ConocoPhillips
announced the Fairwinds partnership to jointly evaluate a site in Harpswell,
Maine for the development of an LNG regasification facility. The residents of
the Town of Harpswell are expected to vote on leasing a town-owned site for the
facility. If leasing of the site is approved and necessary regulatory approvals

<Page>
                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  25


are subsequently received, construction of the LNG facility could begin in 2006
with the facility becoming operational in 2009. Natural gas from the LNG
facility would be delivered by pipeline to markets in the northeast U.S.


OTHER GAS TRANSMISSION -
STRATEGY AND OUTLOOK

TransCanada continues to actively pursue natural gas pipeline and gas
transmission related development and acquisition opportunities in North America,
where these opportunities are driven by strong customer demand and sound
economics. With TransCanada's strong financial position, the company is poised
to capitalize on future acquisition and development opportunities. The company
will continue to evaluate options in a disciplined fashion to maintain a strong
financial position.

World geo-political events will have an impact on the level of development of
future and existing natural gas supplies worldwide. This could directly impact
TransCanada, with the company expanding existing facilities across North America
and being involved in the development of alternative natural gas transportation
solutions as producers access natural gas reserves in the North and Atlantic
Canada.

TransCanada is committed to play a key role in Northern gas development. While
there are many issues to be resolved before this moves forward, TransCanada has
competitive advantages including expertise in the design, construction and
operation of large diameter pipelines in cold weather conditions. TransCanada is
also the leading operator of large natural gas turbine compressor stations, owns
and operates one of the largest, most sophisticated, remote-controlled pipeline
networks in the world, and has a solid reputation for safety and reliability.
This positions the company well to play a key role in bringing Northern gas to
market.

Excluding the impact of the recognition of the $11 million TransGas future tax
benefits in 2003, the net earnings outlook for Other Gas Transmission in 2004 is
expected to be similar to 2003. Net earnings will be affected by factors such as
the performance of the Canadian dollar relative to the U.S. dollar and the level
of project development costs.


OTHER GAS TRANSMISSION - BUSINESS RISKS

FOREIGN EXCHANGE  A significant amount of the earnings in Other Gas Transmission
is generated from U.S. pipeline affiliates. The performance of the Canadian
dollar relative to the U.S. dollar would either positively or negatively impact
this business segment's results.

THROUGHPUT RISK  Iroquois, Portland and Tuscarora all have long-term demand
charge contracts in place with customers and as such, are virtually unaffected
by changes in throughput. As transportation contracts expire on Great Lakes and
Northern Border, these entities will be more exposed to throughput risk and
their revenues will more likely experience increased variability. Throughput
risk is created by supply availability, economic activity, weather variability,
pipeline competition and pricing of alternative fuels.

INSURANCE, EMPLOYEE BENEFITS AND INTEREST RATES  Insurance costs continue to
rise with the increasing risk of terrorism and sabotage in recent years. The
costs of employee benefits, particularly in the U.S., also continue to increase.
At the same time, interest rates remain near historical lows. If these insurance
and employee benefits costs continue to rise and the economic recovery results
in increased interest rates, earnings of Other Gas Transmission could be
negatively impacted.

REGULATION  The U.S. partially-owned pipelines are regulated by the FERC while
the Canadian partially-owned pipeline is regulated by the NEB. These regulators
play a significant role in approving the pipelines' respective returns on
equity, capital structures, tolls and system expansions.

<Page>

26  MANAGEMENT'S DISCUSSION AND ANALYSIS


NATURAL GAS THROUGHPUT VOLUMES

<TABLE>
<CAPTION>
(Bcf)                                    2003      2002      2001
---------------------------------------------------------------------
<S>                                     <C>       <C>       <C>
Alberta System (1)                      3,883     4,146     4,059
Canadian Mainline (2)                   2,628     2,630     2,450
Foothills System                        1,110     1,098     1,117
BC System                                 325       371       395
Great Lakes                               856       863       804
Northern Border                           850       839       821
Iroquois                                  341       340       314
Portland                                   53        52        44
Tuscarora                                  22        20        23
TQM                                       164       175       161
Ventures LP                               111        85        60
TransGas                                   16        16        14
---------------------------------------------------------------------
</TABLE>

(1)  Field receipt volumes for the Alberta System for the year ended December
     31, 2003 were 3,892 Bcf (2002 - 4,101 Bcf; 2001 - 4,170 Bcf).

(2)  Canadian Mainline deliveries originating at the Alberta border and in
     Saskatchewan for the year ended December 31, 2003 were 2,055 Bcf (2002 -
     2,221 Bcf; 2001 - 2,098 Bcf).
<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  27


     TransCanada's strategy is to grow and optimize its Power business by
developing and acquiring low-cost, base-load generation or plants that have
strong contractual underpinnings. TransCanada will continue to focus on markets
where the company has a competitive advantage.



POWER

HIGHLIGHTS

EARNINGS  The Power segment made a significant contribution to TransCanada's
earnings in 2003. Net earnings increased 51 per cent from 2002 due in part to
the acquisition of Bruce Power and increased earnings from Western Operations.

BRUCE POWER  TransCanada completed the acquisition of a 31.6 per cent equity
interest in Bruce Power, the operator and lessee of the Bruce nuclear power
facility in Ontario. This acquisition indirectly increased TransCanada's nominal
generating capacity by 1,000 MW in February 2003. The return to service of Bruce
Power A Unit 4 in fourth quarter 2003 and Bruce Power A Unit 3 in first quarter
2004 increased TransCanada's 31.6 per cent share of the nominal generating
capacity of Bruce Power to 1,474 MW.

EXPANDING ASSET BASE  In June 2003, TransCanada announced its plans to develop
the 550 MW Becancour natural gas-fired cogeneration power plant in Quebec. The
project which is estimated to cost approximately $550 million, including
capitalized interest, is expected to be placed in-service in late 2006. In
October 2003, TransCanada and Grandview Cogeneration Corporation, an affiliate
of Irving Oil Limited (Irving), announced an agreement to construct a 90 MW
natural gas-fired cogeneration power plant on the site of the Irving Oil
Refinery in Saint John, New Brunswick. The plant is expected to be placed
in-service by the end of 2004 at a total estimated cost of approximately $90
million. The company placed the Bear Creek plant in Alberta in-service in first
quarter 2003 and expects the MacKay River plant to be commercially in-service in
first quarter 2004.

OPERATIONAL EXCELLENCE  Average plant availability, excluding Bruce Power, was
94 per cent in 2003 compared to 96 per cent in 2002. This slight decrease
resulted primarily from scheduled maintenance at some of the plants in Western
Operations. Including Bruce Power, average plant availability decreased to 90
per cent for 2003 as a result of scheduled maintenance on two Bruce Power B
units.

<Page>
28


POWER GENERATION

[MAP]


BEAR CREEK  Commercial operation of this 80 MW natural gas-fired cogeneration
plant near Grande Prairie, Alberta commenced in March 2003.

MACKAY RIVER  This 165 MW facility near Fort McMurray, Alberta was completed in
fourth quarter 2003.

REDWATER  Commercial operation of this 40 MW natural gas-fired cogeneration
plant near Redwater, Alberta commenced in January 2002.

SUNDANCE A & B  The Sundance power plant in Alberta is the largest coal-fired
electrical generating facility in western Canada. Through the Alberta PPA
auction in August 2000, TransCanada acquired the Sundance A PPA, which increased
the company's power supply by 560 MW for a 17 year period commencing January
2001. In December 2001, TransCanada acquired 50 per cent of the 706 MW Sundance
B PPA through a partnership arrangement, which increased the company's power
supply by 353 MW for approximately 19 years commencing January 2002.

CARSELAND  Commercial operation of this 80 MW natural gas-fired cogeneration
plant near Carseland, Alberta commenced in January 2002.

CANCARB  The 27 MW Cancarb facility at Medicine Hat, Alberta is fuelled by waste
heat from TransCanada's adjacent thermal carbon black facility.

MANCHIEF  In November 2002, TransCanada acquired the 300 MW simple-cycle
ManChief facility near Brush, Colorado. The entire capacity of the natural
gas-fired ManChief plant is sold under long-term tolling contracts that expire
in 2012.

BRUCE POWER  In February 2003, TransCanada acquired a 31.6 per cent equity
interest in Bruce Power, the operator and lessee of the Bruce nuclear power
facility located near Lake Huron, Ontario. This investment indirectly increased
TransCanada's nominal generating capacity by 1,000 MW, with an additional 474 MW
restarted in late 2003 and early 2004.

<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  29


POWER RESULTS-AT-A-GLANCE

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)     2003      2002      2001
-----------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>
Western operations                                160       131       149
Eastern operations                                127       149       159
Bruce Power investment                             99        --        --
Power LP investment                                35        36        39
General, administrative and support costs         (86)      (73)      (49)
-----------------------------------------------------------------------------
Operating and other income                        335       243       298
Financial charges                                 (12)      (13)      (24)
Income taxes                                     (103)      (84)     (106)
-----------------------------------------------------------------------------
Net earnings                                      220       146       168
=============================================================================
</TABLE>


CURTIS PALMER  The 60 MW Curtis Palmer facility near Corinth, New York is the
company's only hydroelectric facility. All output from this facility is sold
through a fixed-priced, long-term agreement.

OCEAN STATE  The Ocean State Power (OSP) plant is a 560 MW natural gas-fired,
combined-cycle facility in Rhode Island.

BECANCOUR  The 550 MW Becancour natural gas-fired cogeneration power plant
located near Trois-Rivieres, Quebec is in the permitting phase and is expected
to be in-service in late 2006. The entire output will be supplied to
Hydro-Quebec Distribution under a 20 year power purchase contract. Steam will
also be supplied to businesses located nearby.

GRANDVIEW  The 90 MW Grandview natural gas-fired cogeneration power plant
located in Saint John, New Brunswick is under construction and is expected to be
in-service in late 2004. Under a 20 year tolling arrangement, 100 per cent of
the plant's heat and electricity output will be sold to Irving.

WILLIAMS LAKE  Power LP owns a 66 MW wood waste-fired power plant at Williams
Lake, B.C.

CALSTOCK  Calstock, a 35 MW plant, is fuelled by a combination of wood waste and
waste heat exhaust from the adjacent Canadian Mainline compressor station and is
owned by Power LP.

NIPIGON, KAPUSKASING, TUNIS AND NORTH BAY  These efficient, enhanced
combined-cycle facilities are fuelled by a combination of natural gas and waste
heat exhaust from adjacent compressor stations on the Canadian Mainline and are
owned by Power LP.

CASTLETON  Castleton is a 64 MW combined-cycle plant located at
Castleton-on-Hudson, New York and is owned by Power LP.

<Page>

30  MANAGEMENT'S DISCUSSION AND ANALYSIS

NOMINAL GENERATING CAPACITY AND FUEL TYPE OF POWER PLANTS

<TABLE>
<CAPTION>
                                          MW                      Fuel Type
------------------------------------------------------------------------------
<S>                                     <C>          <C>
WESTERN OPERATIONS
   Sundance A (1)                         560                          Coal
   Sundance B (1)                         353                          Coal
   ManChief                               300                   Natural gas
   MacKay River                           165                   Natural gas
   Carseland                               80                   Natural gas
   Bear Creek                              80                   Natural gas
   Redwater                                40                   Natural gas
   Cancarb                                 27                   Natural gas
------------------------------------------------------------------------------
                                        1,605
------------------------------------------------------------------------------
EASTERN OPERATIONS
   Ocean State                            560                   Natural gas
   Curtis Palmer                           60                         Hydro
   Becancour (2)                          550                   Natural gas
   Grandview (3)                           90                   Natural gas
------------------------------------------------------------------------------
                                        1,260
------------------------------------------------------------------------------
BRUCE POWER INVESTMENT (4)
   Bruce B (5)                          1,000                       Nuclear
   Bruce A (6)                            474                       Nuclear
------------------------------------------------------------------------------
                                        1,474
------------------------------------------------------------------------------
POWER LP INVESTMENT (7)
   Williams Lake                           66                    Wood waste
   Castleton                               64                   Natural gas
   Tunis                                   43        Natural gas/waste heat
   Nipigon                                 40        Natural gas/waste heat
   Kapuskasing                             40        Natural gas/waste heat
   North Bay                               40        Natural gas/waste heat
   Calstock                                35         Wood waste/waste heat
------------------------------------------------------------------------------
                                          328
------------------------------------------------------------------------------
                                        4,667
==============================================================================
</TABLE>

(1)  TransCanada directly or indirectly acquires 560 MW from Sundance A and 353
     MW from Sundance B through long-term PPAs, which represents 100 per cent of
     the Sundance A and 50 per cent of the Sundance B power plant output,
     respectively.

(2)  Currently in the permitting phase.

(3)  Currently under construction.

(4)  Represents TransCanada's 31.6 per cent equity interest in Bruce Power.

(5)  Bruce B consists of four reactors, which are currently in operation, with a
     capacity of approximately 3,160 MW. The generating capacity of
     approximately 1,000 MW includes two MW from TransCanada's 17 per cent
     indirect share in Huron Wind L.P. which owns a nine MW wind farm.

(6)  Bruce A consists of four 750 MW reactors. Bruce A Unit 4 was returned to
     service in the fourth quarter of 2003. Bruce A Unit 3 was returned to
     service in first quarter 2004. Bruce A Units 1 and 2 remain out of service.

(7)  At December 31, 2003, TransCanada operated and managed Power LP and held a
     35.6 per cent ownership interest in Power LP. The volumes in the table
     represent 100 per cent of plant capacity.

<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  31


TransCanada's Power business contributed $220 million of net earnings in 2003,
an increase of $74 million or 51 per cent compared to earnings of $146 million
in 2002. This increase is primarily attributable to TransCanada's acquisition in
February 2003 of a 31.6 per cent interest in Bruce Power and higher
contributions from Western Operations. Partially offsetting the increase were
lower earnings from Eastern Operations and higher general, administrative and
support costs.

The increase in general, administrative and support costs in 2003 compared to
the two prior years reflects higher support costs associated with the company's
focus on growth in Power.

Power's net earnings of $146 million in 2002 decreased $22 million compared to
2001. This decrease primarily reflected TransCanada's ability to capitalize on
market opportunities in both Western and Eastern Operations in 2001 which did
not exist in 2002.


POWER - DEVELOPMENTS

TransCanada's Power segment had another strong year in 2003. The Power segment
continued to grow, completing the acquisition of a 31.6 per cent interest in
Bruce Power in February 2003, placing the Bear Creek plant in-service in 2003,
and completing construction of the MacKay River facility at the end of 2003.
TransCanada also increased its presence in eastern Canada, announcing plans to
construct two power plants, Becancour in Quebec and Grandview in New Brunswick.

TransCanada continues to utilize its competitive strengths to seek quality
acquisitions, greenfield development opportunities and expansion of the
company's existing businesses to complement the current portfolio of power
generation assets. TransCanada is generally able to expand the company's
portfolio of power plants while mitigating excessive price risk through the
long-term sale of electricity and steam/heat to the adjacent industrial
customers for a portion of the plant output while, at the same time, retaining a
certain amount of merchant power capacity to be sold to other customers.


WESTERN OPERATIONS

The focus of Western Operations is to optimize and expand the existing asset
base and maximize asset value through a combination of long- and short-term
sales contracts and low-cost generation and supply.

Western Operations has two main components - Western Marketing and Plant
Operations. Western Marketing consists of the power marketing operations
originating out of the Calgary office, including marketing of uncommitted
generation from the Alberta plants and the purchase and resale of electricity
related to the Sundance PPAs. Western Marketing also participates in marketing
electricity in western Canada and throughout the U.S. from Washington state to
Wisconsin. Plant Operations consists of contributions from the Alberta power
plants, the ManChief plant in Colorado, and fees earned to manage and operate
Power LP's seven plants.

WESTERN MARKETING  While a significant portion of Western Plant Operations'
generation is sold under long-term contracts to mitigate price risk, some power
is intentionally not sold under long-term contracts. The Western Marketing
group's primary function is to manage these open positions to maximize the value
of Power's assets through marketing and trading activities as well as through
operational optimization. In order to mitigate market price risk, Western


Power Net Earnings
(millions of dollars)

<TABLE>
<S>  <C>
03   220
02   146
01   168
</TABLE>


Power Sales Volumes
(GWh)

<TABLE>
<S>  <C>
03   28,010
02   20,111
01   14,989
</TABLE>


Plant Availability Excluding
Bruce Power (per cent)

<TABLE>
<S>  <C>
03   94
02   96
01   96
</TABLE>

<Page>

32  MANAGEMENT'S DISCUSSION AND ANALYSIS

Operations has sold approximately 84 per cent of the total generation for 2004
and 70 per cent of the expected, average combined total power supply for the
next three years. Western Operations' largest power supply is its Sundance PPAs.
TransCanada has sold essentially all of the Sundance PPA power supply in 2004
and 69 per cent and 49 per cent of the expected combined power supply for 2005
and 2006, respectively. Western Marketing continues to secure additional
long-term sales contracts for the remaining power supply.

PLANT OPERATIONS  Plant Operations is another area of success and growth for
TransCanada. The expansion of this area is consistent with TransCanada's focus
on capitalizing on the company's expertise in developing new projects and
maintaining its position as a prominent player in the Alberta market. The Bear
Creek plant began commercial operations in March 2003. This 80 MW cogeneration
facility near Grande Prairie, Alberta sells the majority of its power to
Weyerhaeuser's Grande Prairie Pulp Mill, as well as Weyerhaeuser's other Alberta
facilities.

Construction of the MacKay River plant was completed in fourth quarter 2003 and
the plant is expected to be in-service in first quarter 2004. The 165 MW
cogeneration facility near Fort McMurray, Alberta, will provide electricity and
steam to Petro-Canada's adjacent in-situ oil sands operations. The MacKay River
plant increases TransCanada's directly controlled supply in Alberta to more than
1,300 MW.

Plant Operations is committed to an operational excellence model that provides
low-cost, reliable operating performance at each of its plants. The Redwater and
Carseland plants, both completing their second year of operation, operated very
well in 2003. Bear Creek is still in its first year of operations and is in the
process of ongoing operational optimization. ManChief, which was acquired in
November 2002, is another solid performing asset in TransCanada's power
generation portfolio. The entire capacity is sold under long-term tolling
contracts that expire in 2012.

Operating and other income from Western Operations increased by 22 per cent to
$160 million in 2003 from $131 million in 2002 due primarily to a positive $31
million pre-tax ($19 million after tax) settlement in June 2003 with a former
counterparty that defaulted in 2001 under power forward contracts. A full year
of earnings from the ManChief plant, which was acquired in late 2002, higher
contributions from the Sundance PPAs reflecting lower transmission costs, and
higher earnings from the Alberta plants also contributed to higher operating
income. Offsetting these increases were the effects in 2003 of lower prices
achieved on the overall sale of power and the higher cost of natural gas fuel at
the carbon black facility.

While the average Alberta Pool Price for 2003 was $63/megawatt hour (MWh)
compared to $44/MWh in 2002, margins were lower in 2003 due to lower realized
prices and reduced market liquidity.

Operating income from Western Operations decreased $18 million to $131 million
in 2002 when compared to 2001. Market opportunities that existed in 2001
resulting from high power prices (average Alberta Pool Price of $71/MWh in 2001)
and price volatility in western Canada and the Pacific Northwest regions did not
carry over into 2002. However, this was partially offset by income from the
acquisition of the Sundance B PPA, ManChief, and the placing in-service of the
Redwater and Carseland plants.


EASTERN OPERATIONS

Power's Eastern Operations is focused on the New England and New York
deregulated power markets and consists of Power Marketing and Power Generation
operations, both of which operate as one integrated business. Eastern Operations
also include the company's development opportunities in Ontario and other
provinces in eastern Canada.

Over the past five years, TransCanada Power Marketing Limited (TCPM), an
affiliate located in Westborough, Massachusetts, has successfully navigated
through New England's deregulation process and firmly established itself as a
leading power generator and energy provider in the New England power market.
TransCanada continues to seek out opportunities to add generation capacity to
the existing asset base and leverage off this experience in expanding its
presence in the Ontario market.

POWER MARKETING  TransCanada's continued success and growth in the northeast
U.S. is the direct result of an efficient marketing operation which is conducted
through TCPM. TCPM is focused on selling power under contract to wholesale,
commercial and industrial customers while managing a portfolio of power supplies
sourced from both its own generation assets and wholesale power purchases. TCPM
is a full service

<Page>
                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  33


provider offering different products and services to assist customers in
managing their power supply and power prices in deregulated power markets.
Through active portfolio management, TCPM has positioned itself to capture
market opportunities as they arise, while reducing downside exposure. Included
in the additional power supply is TCPM's purchase of 100 per cent of the output
of the 64 MW natural gas-fired combined-cycle plant located in
Castleton-on-Hudson, New York (Castleton), which is owned by Power LP.

POWER GENERATION  Eastern U.S. power generation assets include OSP, a 560 MW
natural gas-fired plant located in Rhode Island, and the 60 MW Curtis and Palmer
hydroelectric facilities (Curtis Palmer) near Corinth, New York. Of the total
OSP output, 76.5 per cent is sold under long-term purchase arrangements to TCPM
with the remainder sold to Boston Edison Company. Output from Curtis Palmer is
sold into the New York market under a fixed-price, long-term power purchase
agreement with Niagara Mohawk Power Corporation for an expected term of more
than 25 years. Curtis Palmer has a high capacity factor due to its strategic
location just downstream of certain water storage facilities on the Hudson
River, but earnings are subject to seasonal and annual variations in water
levels.

Operating income for 2003 from Eastern Operations was $127 million compared to
$149 million in 2002. The $22 million decrease was primarily due to the impact
of higher natural gas fuel costs at OSP resulting from an arbitration process
and the unfavourable impact of a weaker U.S. dollar. Partially offsetting these
decreases were incremental earnings from the growth in volumes and margins in
the eastern U.S. retail business which is focused on sales to large commercial
and industrial customers. In addition, 2003 had higher earnings from Curtis
Palmer as a result of above average water flows and revenue earned from a
temporary generation facility built and operated in Cobourg, Ontario during the
summer of 2003.

Operating income of $149 million in 2002 was slightly lower than the
unprecedented $159 million of earnings in 2001. The decrease year over year was
primarily due to the ability throughout 2001 to capitalize on price volatility
that was less prevalent in 2002, partially offset by a full year of earnings
from the Curtis Palmer hydroelectric facilities purchased in July 2001.

The long-term natural gas supply for OSP is subject to a yearly price
renegotiation. If OSP and the suppliers are unable to reach an agreement on
price in a given year, the matter is settled by arbitration. OSP is currently in
its third such arbitration with its natural gas fuel suppliers. The first two
arbitration decisions substantially increased OSP's natural gas fuel costs.

DEVELOPMENT OPPORTUNITIES IN EASTERN CANADA  In October 2003, TransCanada and an
affiliate of Irving announced an agreement to build a 90 MW natural gas-fired
cogeneration power plant in Saint John, New Brunswick to be developed and owned
by TransCanada. Under a 20 year tolling arrangement, Irving will provide fuel
for the plant and contract for 100 per cent of the plant's heat and electricity
output. Construction of the facility began in December 2003 and is expected to
be in-service by the end of 2004.

In June 2003, TransCanada announced its plans to develop a 550 MW natural
gas-fired cogeneration power plant in Quebec. The power plant will be located in
the Becancour Industrial Park, near Trois-Rivieres and will supply its entire
power output to Hydro-Quebec Distribution under a 20 year power purchase
contract. The plant will also supply steam to certain major businesses located
within the industrial park. Construction of the facility is likely to begin in
2004, pending receipt of regulatory approvals, and is expected to be in-service
in late 2006.

Power continues to assess the viability of developing a natural gas-fuelled
energy centre to meet electricity needs in downtown Toronto through its
partnership with Ontario Power Generation (OPG) in the Portlands Energy Centre
L.P. Situating generation in downtown Toronto, close to the end user, would help
alleviate current and future transmission issues in the downtown core.


BRUCE POWER INVESTMENT

On February 14, 2003, the company completed the acquisitions of a 31.6 per cent
interest in Bruce Power and a 33.3 per cent interest in Bruce Power Inc., the
general partner of Bruce Power, for $409 million. TransCanada also funded a
one-third share ($75 million) of a $225 million accelerated deferred rent
payment made by Bruce Power to OPG.

TransCanada acquired the interests as part of a consortium (the Consortium)
that includes Cameco Corporation (Cameco) and BPC Generation Infrastructure
Trust, a trust established by the Ontario Municipal Employees Retirement
System. Under the agreement, the Consortium acquired British Energy (Canada)
Ltd.,

<Page>

34  MANAGEMENT'S DISCUSSION AND ANALYSIS


which owned a 79.8 per cent interest in Bruce Power as well as a 50 per cent
interest in the nine MW Huron Wind L.P. power facility.

Located in Ontario, the Bruce Power facility is made up of two nuclear plants -
Bruce B and Bruce A. Bruce B consists of four reactors, which are currently in
operation, with a capacity of approximately 3,160 MW. Bruce A consists of four
reactors, which up until 2003, were not operating. In 2003, Bruce Power
completed efforts to restart Bruce A Unit 4, followed on January 8, 2004 with
the restart of Bruce A Unit 3. Both units were laid-up in 1998. These two Bruce
A units add 1,500 MW of capacity, bringing Bruce Power's total capacity to
4,660 MW.

Bruce Power is the tenant under a lease with OPG on the Bruce nuclear power
facility. The initial term of the lease expires in 2018 with an option to extend
the lease by up to 25 years. The Bruce nuclear power facility continues to be
managed and operated by the management and staff of Bruce Power. Spent fuel and
decommissioning liabilities remain the responsibility of OPG and, as determined
at the inception of the lease, are covered by the existing lease payments. The
lease agreement with OPG provides for limited adjustments to the base rent every
five years during the initial term of the lease. These limited adjustments are
based on a maximum of 50 per cent of the discounted value of the expected
increase to the decommissioning costs for the Bruce nuclear power facility,
determined using predetermined principles and assumptions. There are no similar
adjustments to the existing lease payments with respect to spent fuel
liabilities. Commencing in 2006, Bruce Power also has the right to terminate the
lease if the continuing operation of the facility is no longer economically
viable, subject to a lease termination fee, certain ongoing operational
requirements during handover and certain shut-down conditions prior to handover.
TransCanada has severally guaranteed Bruce Power's performance of these
obligations.

TransCanada's share of power output during the period of ownership in 2003 was
6,655 gigawatt hours (GWh). This includes power output from Bruce A Unit 4 for
November and December 2003. Bruce A Unit 4 began producing electricity to the
Ontario electricity grid on October 7, 2003 and was considered commercially
in-service on November 1, 2003. Bruce A Unit 3 reconnected to the Ontario
electricity grid on January 8, 2004. Similar to the Bruce A Unit 4 startup
process, after performing and evaluating tests of the shutdown system, Bruce A
Unit 3 was reconnected to the grid and is expected to ramp up to full power in
first quarter 2004. As of December 31, 2003, Bruce Power's cumulative restart
costs for the two Bruce A units were approximately $720 million. Bruce Power
incurred approximately $300 million on the two unit restart program for the
period February 14, 2003 to December 31, 2003. TransCanada did not provide any
funding to Bruce Power subsequent to the acquisition of the company's ownership
interest in February 2003.

Bruce Power spent approximately $147 million on capital expenditures at Bruce B
for the period February 14, 2003 to December 31, 2003, the majority of which was
for safety systems and power uprate programs.

Equity income from Bruce Power is directly impacted by fluctuations in wholesale
spot market prices for electricity as well as overall plant availability, which
in turn, is impacted by scheduled and unscheduled maintenance. To reduce its
exposure to spot market prices, Bruce Power has entered into fixed price sales
contracts for approximately 1,560 MW of output for 2004. The average
availability in 2004 for the six Bruce units is expected to be approximately 80
per cent compared to 85 per cent for the year ended December 31, 2003. This
decrease reflects planned maintenance outages and a test of the Bruce B vacuum
building expected in the fall, which will require all four Bruce B units to be
taken offline for approximately one month. Capital expenditures by Bruce Power
in 2004 are expected to total about $400 million, including approximately $120
million for sustaining capital. TransCanada does not expect to provide any
funding to Bruce Power in 2004.

Bruce Power contributed $99 million of pre-tax equity income in 2003.
TransCanada's interest in Bruce Power's pre-tax income for 2003 was $65 million.
The additional $34 million of income consisted primarily of the amortization of
purchase price allocations as explained in Note 6 to the December 31, 2003
Consolidated Financial Statements as well as $12 million of capitalized
interest. Bruce Power's average realized price in 2003 from a combination of
contract and spot sales was approximately $48/MWh. Approximately 65 per cent of
Bruce Power's output was sold under longer term contracts in 2003 with the
remainder being sold into Ontario's wholesale spot market.

<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  35


BRUCE POWER RESULTS-AT-A-GLANCE

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)                               2003
------------------------------------------------------------------------------------
<S>                                                                       <C>
BRUCE POWER (100 per cent basis)
    Revenues                                                              1,208
    Operating expenses                                                     (853)
------------------------------------------------------------------------------------
    Operating income                                                        355
    Financial charges                                                       (69)
------------------------------------------------------------------------------------
    Income before income taxes                                              286
====================================================================================
TransCanada's interest in Bruce Power income before income taxes (1)         65
Adjustments (2)                                                              34
------------------------------------------------------------------------------------
TransCanada's income from Bruce Power before income taxes                    99
====================================================================================
</TABLE>

(1)  TransCanada acquired its interest in Bruce Power on February 14, 2003.
     Bruce Power's 100 per cent income before income taxes from February 14 to
     December 31, 2003 was $205 million.

(2)  See Note 6 to the December 31, 2003 Consolidated Financial Statements for
     an explanation of the purchase price amortizations.


POWER LP INVESTMENT

Power LP Investment includes the earnings generated from TransCanada's 35.6 per
cent investment in TransCanada Power, L.P., Canada's largest publicly-held,
power-based income fund. Power LP owns six power plants in Canada and one in the
U.S. that are fuelled by natural gas, waste heat, waste wood or a combination of
these.

TransCanada acts as manager for Power LP. In this capacity, TransCanada manages
the operations and maintenance requirements of Power LP, the fuel supply and
associated price exposure and, when market conditions warrant, TransCanada
enhances the overall operating profits of Power LP (i.e. by curtailing certain
plants during off-peak hours and selling the displaced natural gas at attractive
market prices), resulting in increased overall net earnings for Power LP and
TransCanada.

Operating and other income in 2003 from TransCanada's investment in Power LP
remained consistent with 2002. At December 31, 2003, Power LP units closed at
$36.30 on the Toronto Stock Exchange and TransCanada owned approximately
14.0 million units.


POWER VOLUMES AND AVAILABILITY

Volumes have increased 39 per cent to 28,010 GWh in 2003 compared to 20,111 GWh
in 2002 primarily due to the acquisitions of the interest in Bruce Power and
ManChief. Volumes for Eastern Operations increased as a result of growth in the
retail business which is focused on sales to large commercial and industrial
customers. Volumes for Power LP decreased due to curtailments of off-peak
production as a result of higher market prices for natural gas. This curtailment
activity has resulted in lower power output from the Ontario plants compared to
last year; however, overall financial contribution from these plants was higher.

Average plant availability, excluding Bruce Power, was 94 per cent in 2003
compared to 96 per cent in 2002. This slight decrease resulted primarily from
scheduled maintenance at some of the plants in Western Operations. Including
Bruce Power, average plant availability decreased to 90 per cent for 2003 as a
result of scheduled maintenance on two Bruce Power B units.

<Page>

36  MANAGEMENT'S DISCUSSION AND ANALYSIS


POWER SALES VOLUMES

<TABLE>
<CAPTION>
(GWh)                                     2003          2002          2001
------------------------------------------------------------------------------
<S>                                     <C>           <C>            <C>
Western operations (1)                  12,296        12,065         8,415
Eastern operations                       6,906         5,630         4,216
Bruce Power investment (2)               6,655           n/a           n/a
Power LP investment                      2,153         2,416         2,358
------------------------------------------------------------------------------
Total                                   28,010        20,111        14,989
==============================================================================
</TABLE>

(1)  Sales volumes include TransCanada's share of the Sundance B PPA (50 per
     cent).

(2)  Sales volumes reflect TransCanada's 31.6 per cent share of Bruce Power
     output for the period February 14, 2003 to December 31, 2003.


WEIGHTED AVERAGE PLANT AVAILABILITY (1)

<TABLE>
<CAPTION>
                                            2003         2002         2001
------------------------------------------------------------------------------
<S>                                         <C>          <C>          <C>
Western operations                            93%          99%          96%
Eastern operations                            94%          95%          96%
Bruce Power investment (2)                    83%          n/a          n/a
Power LP investment                           96%          94%          97%
All plants                                    90%          96%          96%
------------------------------------------------------------------------------
</TABLE>

(1)  Plant availability represents the percentage of time in the year that the
     plant is available to generate power, whether actually running or not and
     is reduced by planned and unplanned outages.

(2)  TransCanada's availability reflects the period February 14, 2003 to
     December 31, 2003.


POWER - STRATEGY AND OUTLOOK

STRATEGY  TransCanada is committed to growing the Power segment through the
pursuit of quality acquisitions, greenfield development projects and expansion
of existing businesses. Power's growth strategy is to:

o  focus on low-cost base load generation and/or assets underpinned by strong
   contractual arrangements;

o  focus on markets where it has a competitive advantage;

o  use marketing and trading activities to create stable and predictable cash
   flows and optimize asset value; and

o  apply business models that benefit from and support TransCanada's strong
   balance sheet.

OUTLOOK  TransCanada's Power segment has significant opportunities for growth.
Growth will take place through quality acquisitions, niche development
opportunities and optimization of the company's power portfolio by focusing on
low-risk opportunities in known markets.

Excluding the impact of the settlement with a former counterparty in 2003 and
potential variability in Bruce Power's earnings caused by changes in prices
realized and plant availability, the net earnings outlook for the Power business
in 2004 is expected to be similar to 2003. Earnings opportunities elsewhere in
the business may be affected by factors such as fluctuating market prices for
power and gas, regulatory changes, currency movements, weather, plant
availability and overall stability of the power industry. Please see the
following section "Power - Business Risks" for a complete discussion of these
factors.

TransCanada's Power segment is in a strong position to capitalize on
opportunities resulting from industry changes because of its technical expertise
and business models that have proven successful to date. TransCanada's growth
will continue to focus on diversifying the asset portfolio by adding plants of
varying fuel sources which are on the low end of the regional dispatch cost
curve and/or are underpinned with strong contractual arrangements.

<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  37


POWER - BUSINESS RISKS

PLANT AVAILABILITY  Maintaining plant availability is critical to the continued
success of the Power business and this risk is mitigated through a commitment to
an operational excellence model that provides low-cost, reliable operating
performance at each of the company's operated power plants. This same commitment
to operational excellence will be applied in 2004 and future years. However,
unexpected plant outages or the duration of outages may require purchases at
market prices to enable TransCanada to meet the company's contractual power
supply obligations and/or increase maintenance costs.

FLUCTUATING MARKET PRICES  TransCanada generally operates in highly competitive,
deregulated markets. Volatility in electricity prices is caused by market
factors such as power plant fuel costs, fluctuating supply and market demand
which are greatly affected by weather, power consumption and plant availability.
TransCanada manages these inherent market risks through:

o  long-term purchase and sales contracts for both electricity and plant fuels;

o  control of generation output;

o  matching physical plant contracts or PPA supply with customer demand;

o  fee-for-service managed accounts rather than direct commodity exposure; and

o  the company's overall risk management program with respect to general
   market and counterparty risks.

The company's risk management practices are described further in the section on
Risk Management beginning on page 46 of this Annual Report. TransCanada's
largest exposure to sales price fluctuations is on Bruce Power's uncontracted
volumes. See the section "Power - Business Risks - Uncontracted Volumes".

REGULATORY  As electricity markets evolve across North America, there is the
potential for regulatory bodies to implement new rules that could negatively
impact TransCanada as a generator, marketer and builder of power plants. These
may be in the form of price caps, unfair cost allocations to generators or
attempts to control the wholesale market by encouraging new plant construction.
TransCanada continues to monitor regulatory issues and reform as well as
participate in and lead discussions around these topics. TransCanada operates in
both regulated and non-regulated power markets.

WEATHER  Temperature and weather events may impact power and gas demand and
create price volatility, and may also impact the ability to transmit power to
markets. Seasonal changes in temperature also affect the efficiency and output
capability of natural gas-fired power plants. In addition, the total amount and
seasonality of water flows impacts the output and related earnings from
hydroelectric facilities.

UNCONTRACTED VOLUMES  Although TransCanada seeks to secure sales under medium-
to long-term contracts, TransCanada retains an amount of unsold generation in
the short term in order to provide flexibility in managing the company's
portfolio of owned assets. Bruce Power has a significant amount of its
uncontracted volumes sold into the Ontario wholesale spot market. The sale of
this power in the open market is subject to market price volatility which
directly impacts income. Bruce Power has sold approximately 1,560 MW of the
expected power output for 2004. Of the remaining Power segment's portfolio,
through the use of PPAs and other marketing arrangements, TransCanada has sold
approximately 90 per cent of the expected power output in 2004 and 70 to 80 per
cent for the years 2005 to 2007.

<Page>

38  MANAGEMENT'S DISCUSSION AND ANALYSIS


CORPORATE

HIGHLIGHTS

LOWER NET EXPENSES  Net expenses in 2003 decreased
$11 million or 21 per cent from 2002.


CORPORATE RESULTS-AT-A-GLANCE

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)              2003     2002     2001
------------------------------------------------------------------------------------
<S>                                                       <C>      <C>      <C>
Indirect financial and preferred securities charges         64       64       62
Interest income and other                                  (23)     (12)       5
------------------------------------------------------------------------------------
Net expenses, after tax                                     41       52       67
====================================================================================
</TABLE>

The Corporate segment reflects net expenses not allocated to specific business
segments, including:

o  INDIRECT FINANCIAL AND PREFERRED SECURITIES CHARGES  Direct financial charges
   are reported in their respective business segments; these charges are
   primarily associated with the debt and preferred securities related to the
   company's Wholly-Owned Pipelines. Indirect financial charges primarily reside
   in the Corporate segment. These costs are directly impacted by the amount of
   debt TransCanada maintains and the degree to which TransCanada is impacted by
   fluctuations in interest rates.

o  INTEREST INCOME AND OTHER  Interest income is earned on invested cash
   balances. Gains and losses on foreign exchange are included in interest
   income and other.

Net expenses, after tax, in the Corporate segment were $41 million in 2003
compared to $52 million in 2002 and $67 million in 2001. The decrease in 2003
from 2002 is primarily due to the positive impacts of a weaker U.S. dollar
compared to the prior year. These positive impacts substantially offset the
negative impacts of a weaker U.S. dollar reflected in other segments. The
decrease in net expenses in 2002 from 2001 is primarily due to an increase in
interest income and other and the positive impact of lower interest rates offset
by increased Corporate financial charges resulting from the Fair Return
decision.

The performance of the Canadian dollar relative to the U.S. dollar would either
positively or negatively impact the Corporate segment's results. In 2004, the
performance of the Canadian dollar is not expected to have a significant impact
on TransCanada's consolidated financial results since the impact in the
Corporate segment is anticipated to largely offset impacts in the other business
segments.
<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  39



LIQUIDITY AND CAPITAL RESOURCES

HIGHLIGHTS

SUSTAINED GROWTH  Total capital expenditures, including acquisitions and assumed
debt, have exceeded $3 billion over the past three years.

DEBT REDUCTION  TransCanada's repayment of long-term debt, net of new debt
issued, and redemption of debentures and preferred securities has exceeded $1.6
billion over the past three years.

DIVIDEND INCREASE  TransCanada's Board of Directors has increased quarterly
common share dividend payments for the past four consecutive years, including a
seven per cent increase to $0.29 per share from $0.27 per share for the quarter
ending March 31, 2004.


FUNDS GENERATED FROM OPERATIONS  Funds generated from continuing operations were
$1.8 billion for the year ended December 31, 2003 compared to $1.8 billion and
$1.6 billion for 2002 and 2001, respectively. The Gas Transmission business was
the primary source of funds generated from operations for each of the three
years. As a result of rapid growth in the Power business in the last few years,
the Power segment's funds generated from operations increased in 2003 compared
to the two prior years.

The company also reduced long-term debt, junior subordinated debentures and
preferred securities in each of the past three years. TransCanada's ability to
generate adequate amounts of cash in the short term and the long term when
needed, and to maintain financial capacity and flexibility to provide for
planned growth, remained as strong at December 31, 2003 as compared to the past
few years.

INVESTING ACTIVITIES  Capital expenditures, excluding acquisitions and assumed
debt, totalled $391 million in 2003 compared to $599 million and $492 million in
2002 and 2001, respectively. Expenditures in all three years related primarily
to maintenance and capacity capital in TransCanada's Gas Transmission business
and construction of new power plants in Canada.

During 2003, TransCanada acquired a 31.6 per cent interest in Bruce Power for
$409 million, the remaining interests in Foothills previously not held by the
company for $105 million, excluding assumed debt of $154 million, and increased
its interest in Portland, by way of two separate acquisitions, to 61.7 per cent
from 33.3 per cent for US$51 million, excluding assumed debt of US$78 million.

During 2002, TransCanada acquired the ManChief power plant for $209 million and
a general partnership interest in Northern Border Partners, L.P. for $19
million. During 2001, TransCanada acquired the Curtis Palmer Hydroelectric
Company L.P. for $438 million and, through a partnership, acquired 50 per cent
of the rights and obligations of the 706 MW Sundance B PPA for $110 million.

<Page>

40  MANAGEMENT'S DISCUSSION AND ANALYSIS


TransCanada's 2001 investing activities also include proceeds of $1.2 billion
from the sale of non-core assets under the company's divestiture plan.

FINANCING ACTIVITIES  In 2003, TransCanada used a portion of its cash resources
to repay long-term debt of $744 million, reduce notes payable by $62 million and
redeem all of its outstanding US$160 million, 8.75 per cent Junior Subordinated
Debentures.

In 2003, the company issued $450 million of ten year notes bearing interest at
5.65 per cent and US$350 million of ten year notes bearing interest at 4.00 per
cent. The company repaid debt maturities of $486 million and reduced notes
payable by $46 million in 2002 and repaid debt maturities of $793 million and
redeemed preferred securities of $318 million in 2001. In 2001, TransCanada
increased notes payable by $186 million.

Dividends and preferred securities charges amounting to $588 million were paid
in 2003 compared to $546 million and $517 million in 2002 and 2001,
respectively.

In January 2004, TransCanada's Board of Directors approved an increase in the
quarterly common share dividend payment to $0.29 per share from $0.27 per share
for the quarter ending March 31, 2004. This was the fourth consecutive year of
dividend increase. In January 2003, the Board of Directors approved an increase
in the quarterly common share dividend payment to $0.27 per share from $0.25 per
share for the quarter ended March 31, 2003. In January 2002, the Board of
Directors approved an increase in the quarterly common share dividend payment to
$0.25 per share from $0.225 per share for the quarter ended March 31, 2002. In
January 2001, TransCanada's Board of Directors approved an increase to $0.225
per share from $0.20 per share for the quarter ended March 31, 2001.

Net cash used in financing activities includes TransCanada's proportionate share
of the net reduction in non-recourse debt of joint ventures amounting to $11
million in 2003 compared to $36 million and $109 million in 2002 and 2001,
respectively.

CREDIT ACTIVITIES  In 2002, TCPL filed shelf prospectuses, subsequently amended,
that qualify for issuance $2 billion of common shares, preferred shares and/or
debt securities including medium-term notes in Canada and US$1 billion of debt
securities in the U.S., respectively. During 2003, $450 million of medium-term
notes and US$350 million of senior unsecured notes were issued under these
programs.

At December 31, 2003, total credit facilities of $2.2 billion were available to
support the company's commercial paper program and for general corporate
purposes. Of this total, $1.9 billion represents committed credit facilities of
which $1.5 billion represents a syndicated facility established in December
2002. This facility is comprised of a $1.0 billion tranche with a three year
term and a $500 million tranche with a 364 day term with a two year term out
option. Both tranches are extendible on an annual basis and are revolving unless
during a term out period. Both tranches were extended in December 2003, the $1.0
billion tranche to December 2006 and the $500 million tranche to December 2004.
The remaining committed facilities are non-extendible, of which $60 million
expires in June 2004 and $320 million expires in June 2005.

At December 31, 2003, TransCanada had used approximately $217 million of its
total lines of credit for letters of credit and to support ongoing commercial
arrangements. If drawn, interest on the lines of credit would be charged at
prime rates of Canadian chartered and U.S. banks or at other negotiated
financial bases.


Funds Generated From
Continuing Operations
(millions of dollars)

<TABLE>
<CAPTION>
<S>  <C>
03   1,810
02   1,827
01   1,624
</TABLE>


Capital Expenditures and
Acquisitions, Including
Assumed Debt
(millions of dollars)

<TABLE>
<CAPTION>
<S>  <C>
03   1,217
02     827
01   1,077
</TABLE>


Long-Term Debt Repaid
(net of new debt issued) plus
Debentures and Preferred Securities
Redeemed (millions of dollars)

<TABLE>
<CAPTION>
<S>  <C>
03      32
02     486
01   1,111
</TABLE>

<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  41


Credit ratings on TCPL's senior unsecured debt assigned by Dominion Bond Rating
Service Limited (DBRS), Moody's Investors Service (Moody's) and Standard &
Poor's are currently A, A2 and A-, respectively. DBRS and Moody's both maintain
a `stable' outlook on their ratings and Standard & Poor's maintains a `negative'
outlook on its rating.


CONTRACTUAL OBLIGATIONS

OBLIGATIONS AND COMMITMENTS  Total long-term debt at December 31, 2003 was
$10.0 billion compared to $9.3 billion at December 31, 2002. TransCanada's
share of total non-recourse debt of joint ventures at December 31, 2003 was
$0.8 billion compared to $1.3 billion at the prior year-end. Total notes
payable, including those of joint ventures, at December 31, 2003 were
$367 million compared to $297 million at December 31, 2002. The debt and notes
payable of joint ventures are non-recourse to TransCanada. The security provided
by each joint venture is limited to the rights and assets of that joint venture
and does not extend to the rights and assets of TransCanada, except to the
extent of TransCanada's investment.

At December 31, 2003, principal repayments related to long-term debt and the
company's proportionate share of the non-recourse debt of joint ventures are as
follows.


PRINCIPAL REPAYMENTS

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)    2004    2005    2006    2007    2008    2009+
-------------------------------------------------------------------------------------------------
<S>                                             <C>     <C>     <C>     <C>     <C>    <C>
Long-term debt                                   550     702     399     611     542    7,211
Non-recourse debt
    of joint ventures                             19      69      55      19      19      599
-------------------------------------------------------------------------------------------------
Total principal repayments                       569     771     454     630     561    7,810
=================================================================================================
</TABLE>

At December 31, 2003, future annual payments, net of sub-lease receipts, under
operating leases for various premises are approximately as follows.


OPERATING LEASE PAYMENTS

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)    2004    2005    2006    2007    2008    2009+
-------------------------------------------------------------------------------------------------
<S>                                             <C>     <C>     <C>     <C>     <C>    <C>
Minimum lease payments                            25      25      25      24      24       48
Amounts recoverable
    under sub-leases                              (7)     (7)     (7)     (7)     (7)     (18)
-------------------------------------------------------------------------------------------------
Net payments                                      18      18      18      17      17       30
=================================================================================================
</TABLE>

<Page>

42  MANAGEMENT'S DISCUSSION AND ANALYSIS


At December 31, 2003, the company's future purchase obligations are
approximately as follows.


PURCHASE OBLIGATIONS (1)

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)    2004    2005    2006    2007    2008    2009+
-------------------------------------------------------------------------------------------------
<S>                                            <C>     <C>     <C>     <C>     <C>     <C>
GAS TRANSMISSION
Transportation by others (2)                     167     153      84      82      74      46
Other                                             19      15      15      12       9       2
POWER
Commodity purchases (3)                          465     280     255     260     267   2,937
Capital expenditures (4)                         274     241      96      --      --      --
Other (5)                                         99     103     107      95      90     327
CORPORATE
Information technology and other                  12      --      --      --      --      --
-------------------------------------------------------------------------------------------------
Total purchase obligations                     1,036     792     557     449     440   3,312
=================================================================================================
</TABLE>

(1)  The amounts in this table exclude funding contributions to the company's
     pension plans and TransCanada's one-third share of project definition phase
     costs in the Mackenzie Gas Pipeline Project.

(2)  Rates are based on known 2004 levels. Beyond 2004, demand rates are subject
     to change. The contractual obligations in the table are based on demand
     volumes only and exclude commodity charges incurred when volumes flow.

(3)  Commodity purchases include fixed and variable components. The variable
     components are estimates and are subject to variability in plant
     production, market prices and regulatory tariffs.

(4)  Amounts are estimates and are subject to variability based on timing of
     construction and project enhancements.

(5)  Includes estimates of certain amounts which are subject to change depending
     on plant-fired hours, the consumer price index, actual plant maintenance
     costs, plant salaries as well as changes in regulated rates for
     transportation.

TransCanada expects to make funding contributions to the company's pension plans
in the amount of approximately $80 million during 2004. The expected decrease in
funding in 2004 from the $110 million in 2003 is due to one-time plan design
changes and investment performance above long-term expectations in 2003
partially offset by continued reductions in discount rates used to calculate
plan liabilities.

At December 31, 2003, TransCanada held a 35.6 per cent interest in Power LP
which is a publicly-held limited partnership. On June 30, 2017, the partnership
will redeem all units outstanding, not held directly or indirectly by
TransCanada, at their then fair market value, being the average of the fair
market values assigned thereto by independent valuators, plus all declared and
unpaid distributions of distributable cash thereon (the Redemption Price).
TransCanada is required to fund the Redemption Price in accordance with the
terms of the Power LP Partnership Agreement.

TransCanada has established a $50 million operating line of credit to Power LP,
available on a revolving basis. As at December 31, 2003, the amount borrowed
against this line of credit was $26 million compared to $37 million at December
31, 2002.

At December 31, 2003, TransCanada held a 33.4 per cent interest in TC PipeLines,
LP which is a publicly-held limited partnership. On May 28, 2003, TC PipeLines,
LP renewed its US$40 million unsecured two-year revolving credit facility
(TransCanada Credit Facility) with a subsidiary of TransCanada. At December 31,
2003 and 2002, the partnership had no amount outstanding under the TransCanada
Credit Facility.

On June 18, 2003, the Mackenzie Delta gas producers, the APG and TransCanada
reached an agreement which governs TransCanada's role in the Mackenzie Gas
Pipeline Project. The Project would result in a natural gas pipeline being
constructed from Inuvik, Northwest Territories to the northern border of
Alberta, where it would then connect with the Alberta System. Under

<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  43


the agreement, TransCanada has agreed to finance the APG for its one-third share
of project definition phase costs. This share is estimated to be approximately
$90 million over three years. In the year ended December 31, 2003, TransCanada
funded $34 million of this loan. The ability to recover this investment is
contingent upon the outcome of the project.

TransCanada and its affiliates have long-term natural gas transportation and
natural gas purchase arrangements as well as other purchase obligations, all of
which are or were transacted at market prices and in the normal course of
business.

GUARANTEES  TransCanada had no outstanding guarantees related to the long-term
debt of unrelated third parties at December 31, 2003.

Upon acquisition of Bruce Power, the company, together with Cameco and BPC
Generation Infrastructure Trust, guaranteed on a several pro-rata basis certain
contingent financial obligations of Bruce Power related to operator licenses,
the lease agreement, power sales agreements and contractor services.
TransCanada's share of the net exposure under these guarantees at December 31,
2003 was estimated to be approximately $215 million. The terms of the guarantees
range from 2004 to 2018. The current carrying amount of the liability related to
these guarantees is nil and the fair value is approximately $4 million.

TransCanada has guaranteed the equity undertaking of a subsidiary which supports
the payment, under certain conditions, of principal and interest on the US$195
million public debt obligations of TransGas. The company has a 46.5 per cent
interest in TransGas. Under the terms of the agreement, the company severally
with another major multinational company may be required to fund more than their
proportionate share of debt obligations of TransGas in the event that the
minority shareholders fail to contribute. Any payments made by TransCanada under
this agreement convert into share capital of TransGas. The potential exposure is
contingent on the impact of any change of law on TransGas' ability to service
the debt. From the issuance of the debt in 1995 to date, there has been no
change in applicable law and thus no exposure to TransCanada. The debt matures
in 2010. The company has made no provision related to this guarantee.

CONTINGENCIES  The Canadian Alliance of Pipeline Landowners' Associations and
two individual landowners commenced an action under Ontario's Class Proceedings
Act, 1992, against TransCanada and Enbridge Inc. for damages alleged in 2002 to
arise from the creation of a control zone within 30 metres of the pipeline
pursuant to Section 112 of the NEB Act. The company believes the claim is
without merit and will vigorously defend the action. The company has made no
provision for any potential liability. A liability, if any, would be dealt with
through the regulatory process.

The company and its subsidiaries are subject to various other legal
proceedings and actions arising in the normal course of business. While the
final outcome of such legal proceedings and actions cannot be predicted with
certainty, it is the opinion of management that the resolution of such
proceedings and actions will not have a material impact on the company's
consolidated financial position or results of operations.

FINANCIAL AND OTHER INSTRUMENTS

The company issues short-term and long-term debt including amounts in foreign
currencies, purchases and sells energy commodities and invests in foreign
operations. These activities result in exposures to interest rates, energy
commodity prices and foreign currency exchange rates. The company utilizes
derivative and other financial instruments to manage its exposure to the risks
that result from these activities. A derivative must be designated and effective
to be accounted for as a hedge. Gains or losses relating to derivatives that are
hedges are deferred and recognized in the same period and in the same financial
statement category as the gains or losses on the corresponding hedged
transactions. The recognition of gains and losses on derivatives used as hedges
for the Alberta System, Canadian Mainline and the Foothills System exposures is
determined through the regulatory process.

The carrying amounts of derivatives, which hedge the price risk of foreign
currency denominated assets and liabilities of self-sustaining foreign
operations are recorded on the balance sheet at their fair value. Gains and
losses on the derivatives, realized and unrealized, are included in the foreign
exchange adjustment account in Shareholders' Equity as a reduction of the
corresponding gains and losses on the translation of

<Page>

44  MANAGEMENT'S DISCUSSION AND ANALYSIS

the assets and liabilities of the foreign subsidiaries. Carrying amounts for
interest rate swaps represent the net accrued interest from the last payment
date to the reporting date. Foreign currency transactions hedged by foreign
exchange contracts are recorded at the contract rate. Power, natural gas and
heat rate derivatives are recorded on the balance sheet at their fair value.

The fair values of foreign exchange and interest rate derivatives have been
estimated using year-end market rates. These fair values approximate the amount
that the company would receive or pay if the instruments were closed out at
these dates. The fair values of power, natural gas and heat rate derivatives
have been calculated at year-end using estimated forward prices for the relevant
period.

Notional principal amounts are not recorded in the financial statements because
these amounts are not exchanged by the company and its counterparties and are
not a measure of the company's exposure. Notional amounts are used only as the
basis for calculating payments for certain derivatives.

FOREIGN INVESTMENTS  At December 31, 2003 and 2002, the company had foreign
currency denominated assets and liabilities which created an exposure to changes
in exchange rates. The company uses foreign currency derivatives to hedge this
net exposure on an after-tax basis. The foreign currency derivatives have a
floating interest rate exposure which the company partially hedges by entering
into interest rate swaps and forward rate agreements. The fair values shown in
the table below for foreign exchange risk are offset by translation gains or
losses on the net assets and are recorded in the foreign exchange adjustment
account in Shareholders' Equity.

<TABLE>
<CAPTION>
                                                                   2003                     2002
-----------------------------------------------------------------------------------------------------------
                                                          CARRYING       FAIR      Carrying        Fair
Asset/(Liability) at December 31 (millions of dollars)      AMOUNT      VALUE        Amount       Value
-----------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>        <C>            <C>
FOREIGN EXCHANGE
Cross-currency swaps - U.S. dollars                             65         65            (8)         (8)
Forward foreign exchange contracts - U.S. dollars                2          3            (4)         (4)
-----------------------------------------------------------------------------------------------------------
</TABLE>

At December 31, 2003, the notional principal amounts of cross-currency swaps
were US$250 million (2002 - US$350 million), principal amounts of forward
foreign exchange contracts were US$125 million (2002 - US$225 million). In
addition, the company has associated interest rate swaps with notional principal
amounts of $311 million (2002 - $309 million) and US$200 million (2002 - US$350
million). The fair value of these interest rate swaps was $1 million (2002 -
$(4) million).

RECONCILIATION OF FOREIGN EXCHANGE ADJUSTMENT

<TABLE>
<CAPTION>
December 31 (millions of dollars)                                             2003          2002
----------------------------------------------------------------------------------------------------
<S>                                                                           <C>           <C>
Balance at beginning of year                                                    14            13
Translation (losses)/gains on foreign currency denominated net assets         (136)            3
Foreign exchange gains/(losses) on derivatives, and other                       82            (2)
----------------------------------------------------------------------------------------------------
                                                                               (40)           14
====================================================================================================
</TABLE>

<Page>

                                         MANAGEMENT'S DISCUSSION AND ANALYSIS 45


FOREIGN EXCHANGE AND INTEREST RATE MANAGEMENT ACTIVITY The company manages the
foreign exchange risk of U.S. dollar debt, U.S. dollar expenses and the interest
rate exposures of the Alberta System, the Canadian Mainline and the Foothills
System through the use of foreign currency and interest rate derivatives.
Certain of the realized gains and losses on these derivatives are shared with
shippers on predetermined terms.

<TABLE>
<CAPTION>
                                                                   2003                     2002
-----------------------------------------------------------------------------------------------------------
                                                          CARRYING       FAIR      Carrying        Fair
Asset/(Liability) at December 31 (millions of dollars)      AMOUNT      VALUE        Amount       Value
-----------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>        <C>            <C>
FOREIGN EXCHANGE
Cross-currency swaps                                           (26)       (26)           56          56
INTEREST RATE
Interest rate swaps
   Canadian dollars                                              2         15             4          56
   U.S. dollars                                                 --          8            (1)          4
-----------------------------------------------------------------------------------------------------------
</TABLE>

At December 31, 2003, the notional principal amounts of cross-currency swaps
were US$282 million (2002 - US$282 million) and the notional principal amounts
for interest rate swaps were $964 million (2002 - $874 million) and US$100
million (2002 - US$175 million).

The company manages the foreign exchange risk and interest rate exposure of its
other U.S. dollar debt through the use of foreign currency and interest rate
derivatives. The fair values of the interest rate derivatives are shown in the
table below.

<TABLE>
<CAPTION>
                                                                   2003                     2002
-----------------------------------------------------------------------------------------------------------
                                                          CARRYING       FAIR      Carrying        Fair
Asset/(Liability) at December 31 (millions of dollars)      AMOUNT      VALUE        Amount       Value
-----------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>        <C>            <C>
INTEREST RATE
Interest rate swaps U.S. dollars                                 2         37             2          55
-----------------------------------------------------------------------------------------------------------
</TABLE>

At December 31, 2003, the notional principal amount for interest rate swaps was
US$500 million (2002 - US$400 million).

ENERGY PRICE RISK MANAGEMENT  The company executes power, natural gas and heat
rate derivatives for overall management of its asset portfolio. The company's
portfolio of power, natural gas and heat rate derivatives is primarily comprised
of swap, option and forward contracts, with fixed and floating price
commitments. Heat rate contracts are contracts for the sale or purchase of power
that are priced based on a natural gas index. The fair values and notional
volumes of the swap, option, forward and heat rate contracts are shown in the
tables below.

<TABLE>
<CAPTION>
                                                                   2003                     2002
-----------------------------------------------------------------------------------------------------------
                                                          CARRYING       FAIR      Carrying        Fair
Asset/(Liability) at December 31 (millions of dollars)      AMOUNT      VALUE        Amount       Value
-----------------------------------------------------------------------------------------------------------
<S>                                                       <C>           <C>        <C>            <C>
Power - swaps                                                   (5)        (5)          (36)        (36)
Gas - swaps, forwards and options                              (35)       (35)          (28)        (28)
Heat rate contracts                                             61         61            74          74
-----------------------------------------------------------------------------------------------------------
</TABLE>

<Page>

46  MANAGEMENT'S DISCUSSION AND ANALYSIS


<TABLE>
<CAPTION>
                                            POWER (GWH) (1)            GAS (BCF) (1)
-----------------------------------------------------------------------------------------
Notional Volumes at December 31, 2003     PURCHASES     SALES      PURCHASES     SALES
-----------------------------------------------------------------------------------------
<S>                                       <C>           <C>        <C>           <C>
Power - swaps                                 1,390     4,864             --        --
Gas - swaps, forwards and options                --        --           86.1      88.2
Heat rate contracts                           2,331       735            1.0      20.3
-----------------------------------------------------------------------------------------
</TABLE>


<TABLE>
<CAPTION>
                                              Power (GWh)               Gas (Bcf)
-----------------------------------------------------------------------------------------
Notional Volumes at December 31, 2002     Purchases     Sales      Purchases     Sales
-----------------------------------------------------------------------------------------
<S>                                       <C>           <C>        <C>           <C>
Power - swaps                                   467     5,138             --        --
Gas - swaps, forwards and options                --        --           86.3      88.6
Heat rate contracts                           2,848        --             --      24.8
-----------------------------------------------------------------------------------------
</TABLE>

(1)  Gigawatt hours (GWh); billion cubic feet (Bcf).


RISK MANAGEMENT

RISK MANAGEMENT OVERVIEW  TransCanada and its subsidiaries are exposed to
market, financial and counterparty risks in the normal course of their business
activities. The risk management function assists in managing these various
business activities and the risks associated with these activities. A strong
commitment to a risk management culture by management supports this function.
TransCanada's primary risk management objective is to protect earnings and cash
flow and ultimately, shareholder value.

The risk management function is guided by the following principles that are
applied to all businesses and risk types:

o  BOARD OVERSIGHT Risk strategies, policies and limits are subject to
   review and approval by TransCanada's Board of Directors.

o  INDEPENDENT REVIEW Risk-taking activities are subject to independent
   review, separate from the business lines that initiate the activity.

o  ASSESSMENT Processes are in place to ensure that risks are properly assessed
   at the transaction and counterparty levels.

o  REVIEW AND REPORTING Market positions and exposures, and the
   creditworthiness of counterparties are subject to ongoing review and
   reporting to executive management.

o  ACCOUNTABILITY Business lines are accountable for all risks and the related
   returns for their particular businesses.

o  AUDIT REVIEW Individual risks are subject to internal audit review,
   with independent reporting to the Audit Committee of TransCanada's
   Board of Directors.

The processes within TransCanada's risk management function are designed to
ensure that risks are properly identified, quantified, reported and managed.
Risk management strategies, policies and limits are designed to ensure
TransCanada's risk taking is consistent with the company's business objectives
and risk tolerance. Risks are managed within limits ultimately established by
the company's Board of Directors and implemented by senior management, monitored
by risk management personnel and audited by internal audit personnel.

TransCanada manages market risk exposures in accordance with the company's
corporate market risk policy and position limits. The company's primary market
risks result from volatility in commodity prices, interest rates and foreign
currency exchange rates.

Senior management reviews these exposures and reports to the Audit Committee of
TransCanada's Board of Directors regularly.

MARKET RISK MANAGEMENT  In order to manage market risk exposures created by
fixed and variable pricing arrangements at different pricing indices and
delivery points, the company enters into offsetting physical positions and
derivative financial instruments. Market risks are quantified using
value-at-risk methodology and are reviewed weekly by senior management.

FINANCIAL RISK MANAGEMENT  TransCanada monitors the financial market risk
exposures relating to the company's investments in foreign currency

<Page>

                                        MANAGEMENT'S DISCUSSION AND ANALYSIS  47


denominated net assets, regulated and non-regulated long-term debt portfolios
and foreign currency exposure on transactions. The market risk exposures created
by these business activities are managed by establishing offsetting positions or
through the use of derivative financial instruments.

COUNTERPARTY RISK MANAGEMENT  Counterparty risk is the financial loss that the
company would experience if the counterparty failed to meet its obligations in
accordance with the terms and conditions of its contracts with the company.
Counterparty risk is mitigated by conducting financial and other assessments to
establish a counterparty's creditworthiness, setting exposure limits and
monitoring exposures against these limits, and, where warranted, obtaining
financial assurances.

The company's counterparty risk management practices and positions are
further described under Credit Risk in Note 11 to the Consolidated Financial
Statements.

RISKS AND RISK MANAGEMENT RELATED TO THE KYOTO PROTOCOL  The Canadian government
continues to develop climate change policy that will help it meet its commitment
under the Kyoto Protocol. While broad policy mechanisms such as the Domestic
Emissions Trading Program for Large Final Emitters have been identified, program
details are still undefined. Once these details are finalized, TransCanada will
be better able to assess the implications on the company.

Over the past several years, TransCanada's focus has been, and continues to be,
on developing practical options for reducing greenhouse gas (GHG) emissions from
the company's facilities. This is being achieved through technical and
operational improvements, driven in large part by increased fuel and system
efficiencies and the elimination of methane emissions. TransCanada's current
position is that operating initiatives that reduce GHG at the source are more
appropriate than other mechanisms.

DISCLOSURE CONTROLS AND PROCEDURES AND INTERNAL CONTROLS  Pursuant to the
Sarbanes-Oxley Act as adopted by the U.S. Securities and Exchange Commission,
TransCanada's management evaluates the effectiveness of the design and operation
of the company's disclosure controls and procedures (disclosure controls). This
evaluation is done under the supervision of, and with the participation of, the
President and Chief Executive Officer and the Chief Financial Officer.

As of the end of the period covered by this Annual Report, TransCanada's
management evaluated the effectiveness of its disclosure controls. Based on that
evaluation, the President and Chief Executive Officer and the Chief Financial
Officer have concluded that TransCanada's disclosure controls are effective in
ensuring that material information relating to TransCanada is made known to
management on a timely basis, and is included in this Annual Report.

To the best of these officers' knowledge and belief, there have been no
significant changes in internal controls or in other factors that could
significantly affect internal controls subsequent to the date on which such
evaluation was completed in connection with this Annual Report.


CRITICAL ACCOUNTING POLICY

The company accounts for the impacts of rate regulation in accordance with
generally accepted accounting principles (GAAP) as outlined in Note 1 to the
Consolidated Financial Statements. Three criteria must be met to use these
accounting principles: the rates for regulated services or activities must be
subject to approval by a regulator; the regulated rates must be designed to
recover the cost of providing the services or products; and it must be
reasonable to assume that rates set at levels to recover the cost can be charged
to and will be collected from customers in view of the demand for services or
products and the level of direct and indirect competition. The company's
management believes that all three of these criteria have been met. The most
significant impact from the use of these accounting principles is that in order
to achieve a proper matching of revenues and expenses, the timing of recognition
of certain expenses and revenues may differ from that otherwise expected under
GAAP. The two most significant examples of this relate to the recording of
income taxes on the taxes payable basis and the deferral of foreign exchange
losses as outlined in the Consolidated Financial Statements' Note 12 and Note 7,
respectively.

<Page>

48  MANAGEMENT'S DISCUSSION AND ANALYSIS


CRITICAL ACCOUNTING ESTIMATES

Since a determination of many assets, liabilities, revenues and expenses is
dependent upon future events, the preparation of the company's Consolidated
Financial Statements requires the use of estimates and assumptions which have
been made using careful judgment.

TransCanada's critical accounting estimates are:

DEFERRED AFTER-TAX GAINS AND REMAINING OBLIGATIONS RELATED TO THE GAS MARKETING
BUSINESS  TransCanada mitigated certain of its remaining exposures associated
with the contingent liabilities related to the divested Gas Marketing operations
by acquiring from a subsidiary of Mirant Corporation (Mirant) certain contracts
under which it still had exposure in 2003, and simultaneously hedging the market
price exposures of these contracts. To determine the exposure to these
contracts, the company uses estimates, including future market prices,
transportation volumes, transportation charges and income taxes. The company
remains contingently liable for certain residual obligations. This obligation is
further described in Discontinued Operations on page 50 of this Annual Report.

DEPRECIATION EXPENSE  TransCanada's plant, property and equipment are
depreciated on a straight-line basis over their estimated useful lives.
Depreciation expense for the year ended December 31, 2003 was $914 million.
Depreciation expense impacts the Gas Transmission and Power segments of the
company. In the Gas Transmission business, depreciation rates are approved by
the regulators and recoverable based on the cost of providing the services or
products. A change in the estimation of the useful lives of the plant, property
and equipment in the Gas Transmission segment would therefore have no material
impact on TransCanada's net income but would directly impact funds generated
from operations.


ACCOUNTING CHANGES

HEDGING RELATIONSHIPS  In November 2001, the Accounting Standards Board (AcSB)
of the Canadian Institute of Chartered Accountants (CICA) issued an Accounting
Guideline "Hedging Relationships" that specifies the circumstances in which
hedge accounting is appropriate, including the identification, documentation,
designation and effectiveness of hedges, and the discontinuance of hedge
accounting. The AcSB amended this guideline in June 2003 to clarify some aspects
and to add an appendix of implementation guidance. The rules under this
guideline are substantially similar to the corresponding requirements under
Statement of Financial Accounting Standards (SFAS) No. 133 which was adopted by
the company for U.S. GAAP purposes, effective January 1, 2001. This accounting
guideline will be effective for the company as of January 1, 2004 on a
prospective basis. TransCanada does not expect the new Canadian requirement to
have a significant impact on the company's Consolidated Financial Statements.

DISPOSAL OF LONG-LIVED ASSETS AND DISCONTINUED OPERATIONS  In November 2002,
the CICA issued a new Handbook Section "Disposal of Long-Lived Assets and
Discontinued Operations". This section establishes new standards for the
recognition, measurement, presentation and disclosure of the disposal of
long-lived assets. It also establishes standards for the presentation and
disclosure of discontinued operations, whether or not they include long-lived
assets. This section was effective for the company on a prospective basis after
May 1, 2003 and did not result in restatement of income for prior periods.

IMPAIRMENT OF LONG-LIVED ASSETS  In November 2002, the CICA issued a new
Handbook Section "Impairment of Long-Lived Assets". This section establishes
new standards for the recognition, measurement and

<Page>

                                       MANAGEMENT'S DISCUSSION AND ANALYSIS   49


disclosure of the impairment of long-lived assets and establishes new write-down
provisions. This section will be effective for the company as of January 1, 2004
and is not expected to have a significant impact on the company's Consolidated
Financial Statements.

ASSET RETIREMENT OBLIGATIONS  In January 2003, the CICA issued a new Handbook
Section "Asset Retirement Obligations". The new section focuses on the
recognition and measurement of liabilities for obligations associated with the
retirement of property, plant and equipment when those obligations result from
the acquisition, construction, development or normal operation of the assets.
The section requires that the fair value of a liability for an asset retirement
obligation be recognized in the period in which it is incurred if a reasonable
estimate of fair value can be made. The fair value is added to the carrying
amount of the associated asset. The liability is accreted at the end of each
period through charges to operating expenses. This standard is substantially
similar to the corresponding requirements under SFAS No. 143 which was adopted
by the company for U.S. GAAP purposes, effective January 1, 2003. This section
will be effective for TransCanada as of January 1, 2004. The impact of this
standard has been outlined in Note 18 to the Consolidated Financial Statements.

CONSOLIDATION OF VARIABLE INTEREST ENTITIES  In June 2003, the AcSB of the CICA
issued a new Accounting Guideline "Consolidation of Variable Interest Entities"
which requires enterprises to identify variable interest entities in which they
have an interest, determine whether they are the primary beneficiary of such
entities and, if so, to consolidate them. For TransCanada, the guideline's
disclosure requirements are effective as of January 1, 2004 and the
consolidation requirements are effective as of January 1, 2005. Adopting the
provisions of this guideline is not expected to impact the company's
Consolidated Financial Statements.

GENERALLY ACCEPTED ACCOUNTING PRINCIPLES  In July 2003, the CICA issued a new
Handbook Section "Generally Accepted Accounting Principles" which establishes
standards for financial reporting in accordance with GAAP. It defines primary
sources of GAAP and requires that an entity apply every relevant primary source.
This section will be effective for the company as of January 1, 2004 and will
require the recognition of additional regulated assets and liabilities but is
not expected to have a significant impact on the company's net income.

GENERAL STANDARDS OF FINANCIAL STATEMENT PRESENTATION  In July 2003, the CICA
issued a new Handbook Section "General Standards of Financial Statement
Presentation" which clarifies what constitutes "fair presentation in accordance
with GAAP". This section will be effective for the company as of January 1, 2004
and is not expected to have an impact on the company's Consolidated Financial
Statements.


OTHER INFORMATION

Additional information relating to TransCanada, including the company's Annual
Information Form, is posted on SEDAR at www.sedar.com under TransCanada
Corporation.

Other selected consolidated financial information for the years ended December
31, 2003, 2002, 2001 and 2000 is found under the heading "Four-Year Financial
Highlights" on pages 90 and 91 of this Annual Report.

<Page>

50  MANAGEMENT'S DISCUSSION AND ANALYSIS


DISCONTINUED OPERATIONS

FINANCIAL REVIEW

TransCanada's Board of Directors approved a plan to dispose of the company's
International, Canadian Midstream, and certain other businesses (December Plan)
and the disposal of the Gas Marketing business in December 1999 and July 2001,
respectively. The company's disposals under both plans were substantially
completed at December 31, 2001.

The company's investments in Gasoducto del Pacifico, INNERGY Holdings S.A. and
P.T. Paiton Energy Company approved for disposal under the December Plan will be
accounted for as part of continuing operations as of December 31, 2003 due to
the length of time it has taken the company to dispose of these assets. It is
the intention of the company to continue with its plan to dispose of these
investments.

In 2003, the company reviewed the provision for loss on discontinued operations
and the deferred gain, taking into consideration the impacts of Mirant filing
for bankruptcy protection and the mitigation of certain contingent liabilities
referred to below. As a result of this review, TransCanada recognized in income
in 2003 $50 million of the original approximately $100 million after-tax
deferred gain. Any further adjustments to the estimate of the net loss on
disposal and the deferred gain will be recognized as a gain or loss from
discontinued operations in the period that such changes are determined.

The company's net income/(loss) from discontinued operations in 2002 was nil as
the existing provision for loss on discontinued operations was reviewed by the
company's management and determined to be appropriate. The company recorded a
net loss from discontinued operations in 2001 of $67 million. This amount
includes a net loss of $90 million based on management's estimates of proceeds
and disposal costs and net earnings of $3 million prior to plan approval,
related to the Gas Marketing business. Also included in 2001 is a positive $20
million after-tax adjustment to the December Plan.

TransCanada remains contingently liable pursuant to guarantees and obligations
under certain contracts that relate to the divested Gas Marketing business. In
accordance with the terms of these contracts and in the normal course of
business, the company expects the underlying volumes related to the contracts to
decrease over time. The contingent liability under these obligations is
contingent on certain future events, the occurrence and the amount of which is
not determinable. The purchasers of the Gas Marketing business have agreed to
indemnify TransCanada in the event the company is called upon to perform under
the obligations.

<Page>

                                       MANAGEMENT'S DISCUSSION AND ANALYSIS   51


SELECTED THREE YEAR CONSOLIDATED FINANCIAL DATA (1)

<TABLE>
<CAPTION>
(millions of dollars except per share amounts)        2003        2002        2001
--------------------------------------------------------------------------------------
<S>                                                <C>         <C>         <C>
INCOME STATEMENT
Revenues                                             5,357       5,214       5,275
Net income
    Continuing operations                              801         747         686
    Discontinued operations                             50          --         (67)
--------------------------------------------------------------------------------------
    Total                                              851         747         619
--------------------------------------------------------------------------------------
BALANCE SHEET
Total assets                                        20,544      19,966      19,905
Long-term debt                                       9,465       8,815       9,347
Non-recourse debt of joint ventures                    761       1,222       1,295
Preferred securities                                    22         238         237
--------------------------------------------------------------------------------------
PER COMMON SHARE DATA
Net income - Basic
    Continuing operations                          $  1.66     $  1.56     $  1.44
    Discontinued operations                           0.10          --       (0.14)
--------------------------------------------------------------------------------------
                                                   $  1.76     $  1.56     $  1.30
--------------------------------------------------------------------------------------
NET INCOME - DILUTED                               $  1.76     $  1.55     $  1.30
--------------------------------------------------------------------------------------
DIVIDENDS DECLARED                                 $  1.08     $  1.00     $  0.90
--------------------------------------------------------------------------------------
</TABLE>

(1)  The selected three year consolidated financial data has been prepared in
     accordance with Canadian GAAP. Certain comparative figures have been
     reclassified to conform with the current year's presentation. For a
     discussion on the factors affecting the comparability of the financial
     data, including discontinued operations, refer to Note 1 and Note 17 of
     TransCanada's 2003 Audited Consolidated Financial Statements.

<Page>

52  MANAGEMENT'S DISCUSSION AND ANALYSIS


SELECTED QUARTERLY AND ANNUAL CONSOLIDATED FINANCIAL DATA (1)

<TABLE>
<CAPTION>
(millions of dollars except per share amounts)        First    Second     Third    Fourth    Annual
------------------------------------------------------------------------------------------------------
<S>                                                 <C>       <C>       <C>       <C>       <C>
2003
Revenues                                              1,336     1,311     1,391     1,319     5,357
Net income
    Continuing operations                               208       202       198       193       801
    Discontinued operations                              --        --        50        --        50
------------------------------------------------------------------------------------------------------
                                                        208       202       248       193       851
======================================================================================================
SHARE STATISTICS
Net income per share - Basic
    Continuing operations                           $  0.43   $  0.42   $  0.41   $  0.40   $  1.66
    Discontinued operations                              --        --      0.10        --      0.10
------------------------------------------------------------------------------------------------------
                                                    $  0.43   $  0.42   $  0.51   $  0.40   $  1.76
======================================================================================================
Net income per share - Diluted                      $  0.43   $  0.42   $  0.51   $  0.40   $  1.76
======================================================================================================
Dividend declared per common share                  $  0.27   $  0.27   $  0.27   $  0.27   $  1.08
------------------------------------------------------------------------------------------------------
2002
Revenues                                              1,246     1,345     1,285     1,338     5,214
Net income
    Continuing operations                               187       205       175       180       747
    Discontinued operations                              --        --        --        --        --
------------------------------------------------------------------------------------------------------
                                                        187       205       175       180       747
======================================================================================================
SHARE STATISTICS
Net income per share - Basic
    Continuing operations                           $  0.39   $  0.43   $  0.37   $  0.37   $  1.56
    Discontinued operations                              --        --        --        --        --
------------------------------------------------------------------------------------------------------
                                                    $  0.39   $  0.43   $  0.37   $  0.37   $  1.56
======================================================================================================
Net income per share - Diluted                      $  0.39   $  0.43   $  0.36   $  0.37   $  1.55
======================================================================================================
Dividend declared per common share                  $  0.25   $  0.25   $  0.25   $  0.25   $  1.00
------------------------------------------------------------------------------------------------------
</TABLE>

(1)  The selected quarterly and annual consolidated financial data has been
     prepared in accordance with Canadian GAAP. Certain comparative figures have
     been reclassified to conform with the current year's presentation. For a
     discussion on the factors affecting the comparability of the financial
     data, including discontinued operations, refer to Note 1 and Note 17 of
     TransCanada's 2003 Audited Consolidated Financial Statements.


FORWARD-LOOKING INFORMATION

Certain information in this Management's Discussion and Analysis is
forward-looking and is subject to important risks and uncertainties. The results
or events predicted in this information may differ from actual results or
events. Factors which could cause actual results or events to differ materially
from current expectations include, among other things, the ability of
TransCanada to successfully implement its strategic initiatives and whether such
strategic initiatives will yield the expected benefits, the availability and
price of energy commodities, regulatory decisions, competitive factors in the
pipeline and power industry sectors, and the prevailing economic conditions in
North America. For additional information on these and other factors, see the
reports filed by TransCanada with Canadian securities regulators and with the
U.S. Securities and Exchange Commission. TransCanada disclaims any intention or
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
<Page>

2003 CONSOLIDATED FINANCIAL STATEMENTS



[GRAPHIC]



STRONG RESULTS

<Page>

REPORT OF MANAGEMENT

The consolidated financial statements included in this Annual Report are the
responsibility of Management and have been approved by the Board of Directors of
the Company. These consolidated financial statements have been prepared by
Management in accordance with generally accepted accounting principles (GAAP) in
Canada and include amounts that are based on estimates and judgments. Financial
information contained elsewhere in this Annual Report is consistent with the
consolidated financial statements.

Management has prepared Management's Discussion and Analysis (MD&A) which is
based on the Company's financial results prepared in accordance with Canadian
GAAP. It compares the Company's financial performance in 2003 to 2002 and should
be read in conjunction with the consolidated financial statements and
accompanying notes. In addition, significant changes between 2002 and 2001 are
highlighted. Note 18 to the consolidated financial statements describes the
impact on the consolidated financial statements of significant differences
between Canadian and United States GAAP.

Management has developed and maintains a system of internal accounting controls,
including a program of internal audits. Management believes that these controls
provide reasonable assurance that financial records are reliable and form a
proper basis for preparation of financial statements. The internal accounting
control process includes Management's communication to employees of policies
which govern ethical business conduct.

The Board of Directors has appointed an Audit Committee consisting of unrelated,
non-management directors which meets at least five times during the year with
Management and independently with each of the internal and external auditors and
as a group to review any significant accounting, internal control and auditing
matters. The Audit Committee reviews the consolidated financial statements with
Management and the external auditors before the consolidated financial
statements are submitted to the Board of Directors for approval. The internal
and external auditors have free access to the Audit Committee without obtaining
prior Management approval.

With respect to the external auditors, KPMG LLP, the Audit Committee approves
the terms of engagement and reviews the annual audit plan, the Auditors' Report
and results of the audit. It also recommends to the Board of Directors the firm
of external auditors to be appointed by the shareholders.

The independent external auditors, KPMG LLP, have been appointed by the
shareholders to express an opinion as to whether the consolidated financial
statements present fairly, in all material respects, the Company's financial
position, results of operations and cash flows in accordance with Canadian
generally accepted accounting principles. The report of KPMG LLP on page 59
outlines the scope of their examination and their opinion on the consolidated
financial statements.


/s/ Harold N. Kvisle            /s/ Russell K. Girling

HAROLD N. KVISLE                RUSSELL K. GIRLING
President and                   Executive Vice-President, Corporate Development
Chief Executive Officer         and Chief Financial Officer


February 23, 2004

<Page>

                                                                              55


CONSOLIDATED INCOME

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars except per share amounts)       2003        2002        2001
------------------------------------------------------------------------------------------------------------
<S>                                                                       <C>         <C>         <C>
REVENUES                                                                   5,357       5,214       5,275

OPERATING EXPENSES
Cost of sales                                                                692         627         712
Other costs and expenses                                                   1,682       1,546       1,618
Depreciation                                                                 914         848         793
------------------------------------------------------------------------------------------------------------
                                                                           3,288       3,021       3,123
------------------------------------------------------------------------------------------------------------

OPERATING INCOME                                                           2,069       2,193       2,152

OTHER EXPENSES/(INCOME)
Financial charges (Note 7)                                                   821         867         889
Financial charges of joint ventures                                           77          90         107
Equity income (Note 6)                                                      (165)        (33)        (24)
Interest and other income                                                    (60)        (53)        (53)
------------------------------------------------------------------------------------------------------------
                                                                             673         871         919
------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS BEFORE
   INCOME TAXES AND NON-CONTROLLING INTERESTS                              1,396       1,322       1,233
INCOME TAXES (Note 12)                                                       535         517         480
NON-CONTROLLING INTERESTS (Note 9)                                            60          58          67
------------------------------------------------------------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS                                        801         747         686
NET INCOME/(LOSS) FROM DISCONTINUED OPERATIONS (Note 17)                      50          --         (67)
------------------------------------------------------------------------------------------------------------
NET INCOME                                                                   851         747         619
============================================================================================================

NET INCOME/(LOSS) PER SHARE (Note 10)

Continuing operations                                                     $ 1.66      $ 1.56      $ 1.44
Discontinued operations                                                     0.10          --       (0.14)
------------------------------------------------------------------------------------------------------------
Basic                                                                     $ 1.76      $ 1.56      $ 1.30
============================================================================================================
Diluted                                                                   $ 1.76      $ 1.55      $ 1.30
============================================================================================================
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of these statements.

<Page>

56


CONSOLIDATED CASH FLOWS

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)                 2003        2002        2001
---------------------------------------------------------------------------------------------
<S>                                                        <C>         <C>         <C>
CASH GENERATED FROM OPERATIONS
Net income from continuing operations                         801         747         686
Depreciation                                                  914         848         793
Future income taxes                                           230         247         127
Equity income in excess of distributions received            (128)         (6)         --
Non-controlling interests                                      60          58          67
Other                                                         (67)        (67)        (49)
---------------------------------------------------------------------------------------------
Funds generated from continuing operations                  1,810       1,827       1,624
Decrease in operating working capital (Note 15)               112          33         170
---------------------------------------------------------------------------------------------
Net cash provided by continuing operations                  1,922       1,860       1,794
Net cash (used in)/provided by discontinued operations        (17)         59        (659)
---------------------------------------------------------------------------------------------
                                                            1,905       1,919       1,135
---------------------------------------------------------------------------------------------

INVESTING ACTIVITIES
Capital expenditures                                         (391)       (599)       (492)
Acquisitions, net of cash acquired                           (570)       (228)       (585)
Disposition of assets                                          --          --       1,170
Deferred amounts and other                                   (190)       (115)         30
---------------------------------------------------------------------------------------------
Net cash (used in)/provided by investing activities        (1,151)       (942)        123
---------------------------------------------------------------------------------------------

FINANCING ACTIVITIES
Dividends and preferred securities charges                   (588)       (546)       (517)
Notes payable (repaid)/issued, net                            (62)        (46)        186
Long-term debt issued                                         930          --          --
Reduction of long-term debt                                  (744)       (486)       (793)
Non-recourse debt of joint ventures issued                     60          44          23
Reduction of non-recourse debt of joint ventures              (71)        (80)       (132)
Redemption of junior subordinated debentures                 (218)         --          --
Common shares issued                                           65          50          24
Partnership units of joint ventures issued                     --          --          59
Preferred securities redeemed                                  --          --        (318)
---------------------------------------------------------------------------------------------
Net cash used in financing activities                        (628)     (1,064)     (1,468)
---------------------------------------------------------------------------------------------

INCREASE/(DECREASE) IN CASH AND SHORT-TERM INVESTMENTS        126         (87)       (210)

CASH AND SHORT-TERM INVESTMENTS
Beginning of year                                             212         299         509
---------------------------------------------------------------------------------------------

CASH AND SHORT-TERM INVESTMENTS
End of year                                                   338         212         299
=============================================================================================
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of these statements.

<Page>

                                                                              57


CONSOLIDATED BALANCE SHEET

<TABLE>
<CAPTION>
December 31 (millions of dollars)                                                      2003         2002
------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>          <C>
ASSETS
CURRENT ASSETS
Cash and short-term investments                                                         338          212
Accounts receivable                                                                     605          691
Inventories                                                                             165          178
Other                                                                                    88          107
------------------------------------------------------------------------------------------------------------
                                                                                      1,196        1,188
LONG-TERM INVESTMENTS (Note 6)                                                          733          345
PLANT, PROPERTY AND EQUIPMENT (Notes 3, 7 and 8)                                     17,451       17,496
OTHER ASSETS (Note 4)                                                                 1,164          937
------------------------------------------------------------------------------------------------------------
                                                                                     20,544       19,966
============================================================================================================

LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable (Note 13)                                                                 367          297
Accounts payable                                                                      1,025          990
Accrued interest                                                                        208          227
Current portion of long-term debt (Note 7)                                              550          517
Current portion of non-recourse debt of joint ventures (Note 8)                          19           75
------------------------------------------------------------------------------------------------------------
                                                                                      2,169        2,106
DEFERRED AMOUNTS                                                                        466          549
LONG-TERM DEBT (Note 7)                                                               9,465        8,815
FUTURE INCOME TAXES (Note 12)                                                           427          226
NON-RECOURSE DEBT OF JOINT VENTURES (Note 8)                                            761        1,222
PREFERRED SECURITIES (Note 9)                                                            22          238
------------------------------------------------------------------------------------------------------------
                                                                                     13,310       13,156
------------------------------------------------------------------------------------------------------------
NON-CONTROLLING INTERESTS (Note 9)                                                    1,143        1,063

SHAREHOLDERS' EQUITY
Common shares (Note 10)                                                               4,679        4,614
Contributed surplus                                                                     267          265
Retained earnings                                                                     1,185          854
Foreign exchange adjustment (Note 11)                                                   (40)          14
------------------------------------------------------------------------------------------------------------
                                                                                      6,091        5,747
------------------------------------------------------------------------------------------------------------
COMMITMENTS, CONTINGENCIES AND GUARANTEES (Note 16)
                                                                                     20,544       19,966
============================================================================================================
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of these statements.


On behalf of the Board:

/s/ Harold N. Kvisle            /s/ Harry G. Schaefer
HAROLD N. KVISLE                HARRY G. SCHAEFER
Director                        Director

<Page>

58


CONSOLIDATED RETAINED EARNINGS


<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)       2003        2002        2001
-----------------------------------------------------------------------------------
<S>                                               <C>         <C>         <C>
Balance at beginning of year                        854         586         395
Net income                                          851         747         619
Common share dividends                             (520)       (479)       (428)
-----------------------------------------------------------------------------------
                                                  1,185         854         586
===================================================================================
</TABLE>

The accompanying notes to the consolidated financial statements are an integral
part of these statements.

<Page>

                                                                              59


AUDITORS' REPORT

TO THE SHAREHOLDERS OF TRANSCANADA CORPORATION

We have audited the consolidated balance sheets of TransCanada Corporation as at
December 31, 2003 and 2002 and the consolidated statements of income, retained
earnings and cash flows for each of the years in the three-year period ended
December 31, 2003. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with Canadian generally accepted auditing
standards. Those standards require that we plan and perform an audit to obtain
reasonable assurance whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.

In our opinion, these consolidated financial statements present fairly, in all
material respects, the financial position of the Company as at December 31, 2003
and 2002 and the results of its operations and its cash flows for each of the
years in the three-year period ended December 31, 2003 in accordance with
Canadian generally accepted accounting principles.


/s/ KPMG LLP
CHARTERED ACCOUNTANTS
Calgary, Canada
February 23, 2004
<Page>

60


     TransCanada Corporation (the Company or TransCanada) is a leading North
American energy company. TransCanada operates in two business segments, Gas
Transmission and Power, each of which offers different products and services.



NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

GAS TRANSMISSION

The Gas Transmission segment owns and operates a natural gas transmission system
in Alberta (the Alberta System), a natural gas transmission system extending
from the Alberta border east into Quebec (the Canadian Mainline), a natural gas
transmission system extending from the Alberta border west into southeastern
British Columbia (the BC System), and a natural gas transmission system
extending from central Alberta to the British Columbia, Saskatchewan and the
United States borders (the Foothills System). Gas Transmission also holds the
Company's investments in other natural gas pipelines in Canada and the U.S. In
addition, Gas Transmission investigates and develops new natural gas
transmission, storage and liquefied natural gas regasification facilities in
Canada and the U.S.

POWER

The Power segment builds, owns and operates electrical power generation plants,
and markets electricity. Power also holds the Company's investments in other
electrical power generation plants. This business operates in Canada and the
U.S.

NOTE 1  ACCOUNTING POLICIES

The consolidated financial statements of the Company have been prepared by
Management in accordance with Canadian generally accepted accounting principles
(Canadian GAAP). These accounting principles are different in some respects from
United States generally accepted accounting principles (U.S. GAAP) and the
significant differences are described in Note 18. Amounts are stated in Canadian
dollars unless otherwise indicated. Certain comparative figures have been
reclassified to conform with the current year's presentation.

Since a determination of many assets, liabilities, revenues and expenses is
dependent upon future events, the preparation of these consolidated financial
statements requires the use of estimates and assumptions which have been made
using careful judgment. In the opinion of Management, these consolidated
financial statements have been properly prepared within reasonable limits of
materiality and within the framework of the significant accounting policies
summarized below.

BASIS OF PRESENTATION  Pursuant to a plan of arrangement, effective May 15,
2003, common shares of TransCanada PipeLines Limited (TCPL) were exchanged on a
one-to-one basis for common shares of TransCanada. As a result, TCPL became a
wholly-owned subsidiary of TransCanada. The consolidated financial statements
for the year ended December 31, 2003 include the accounts of TransCanada, the
consolidated accounts of all subsidiaries, including TCPL, and TransCanada's
proportionate share of the accounts of the Company's joint venture investments.
Comparative information for the years ended December 31, 2002 and 2001 is that
of TCPL, its subsidiaries, and its proportionate share of the accounts of its
joint venture investments at that time.

On August 15, 2003, the Company acquired the remaining interests in Foothills
Pipe Lines Ltd. and its subsidiaries (Foothills) previously not held by
TransCanada, and Foothills was consolidated subsequent to that date. On
December 3, 2003, TransCanada increased its ownership interest in Portland
Natural Gas Transmission System Partnership (Portland) from 43.4 per cent to
61.7 per cent. Subsequent to the acquisition, Portland was fully consolidated
in the Company's financial statements with 38.3 per cent reflected in
non-controlling interests.

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  61


The financial statements of TransCanada have been prepared using the continuity
of interests method of accounting. Accordingly, the financial statements of
TransCanada on the effective date of the plan of arrangement, on a consolidated
basis, were in all material respects the same as those of TCPL immediately prior
to the plan of arrangement becoming effective, except that the preferred
securities and preferred shares of TCPL have been reflected as non-controlling
interests in the consolidated financial statements of TransCanada. In addition,
the distributions on the preferred securities and the dividends on the preferred
shares have been reflected as non-controlling interest charges in determining
the consolidated net income of TransCanada.

TransCanada uses the equity method of accounting for investments over which the
Company is able to exercise significant influence.

REGULATION  The Alberta System is regulated by the Alberta Energy and Utilities
Board (EUB), and the Canadian Mainline, the BC System, the Foothills System, and
Trans Quebec & Maritimes Pipeline Inc. (Trans Quebec & Maritimes) are subject to
the authority of the National Energy Board (NEB). All Canadian natural gas
transmission operations are regulated with respect to the determination of
tolls, construction and operations. In December 2002, the NEB approved
TransCanada's application for the Canadian Mainline to charge interim tolls for
transportation service, effective January 1, 2003. In August 2003, subsequent to
the NEB's decision on the 2003 Tolls and Tariff Application, it approved interim
tolls for the period September 1, 2003 to December 31, 2003. The NEB determined
that tolls will remain interim pending a decision from the Federal Court of
Appeal on TransCanada's Fair Return Review and Variance Application. Any
adjustments to the interim tolls will be recorded in accordance with the final
NEB decision. The natural gas pipelines in the United States and certain power
plants are also subject to the authority of regulatory bodies. In order to
achieve a proper matching of revenues and expenses, the timing of recognition of
certain revenues and expenses in these businesses may differ from that otherwise
expected under generally accepted accounting principles.

CASH AND SHORT-TERM INVESTMENTS  The Company's short-term investments with
original maturities of three months or less are considered to be cash
equivalents and are recorded at cost, which approximates market value.

INVENTORIES  Inventories are carried at the lower of average cost or net
realizable value and primarily consist of materials and supplies including spare
parts, and storage gas.

PLANT, PROPERTY AND EQUIPMENT

GAS TRANSMISSION  Plant, property and equipment of natural gas transmission
operations are carried at cost. Depreciation is calculated on the straight-line
basis. Pipeline and compression equipment are depreciated at annual rates
ranging from two to five per cent and metering and other plant are depreciated
at various rates. Removal and site restoration costs are not determinable and
will be recorded when reasonably estimable. An allowance for funds used during
construction, using the rate of return on rate base approved by the regulators,
is capitalized and included in the cost of gas transmission plant.

POWER  Plant, property and equipment in the Power business are recorded at cost
and depreciated on the straight-line basis over estimated service lives at
average annual rates ranging from two to five per cent. Interest is capitalized
on significant capital projects.

CORPORATE Corporate plant, property and equipment are recorded at cost and
depreciated on a straight-line basis over estimated useful lives at average
annual rates ranging from three to twenty per cent.

POWER PURCHASE ARRANGEMENTS  The initial payments for power purchase
arrangements (PPAs) are deferred and are being amortized over the terms of the
contracts, from the dates of acquisition, which range from nine to 27 years.
PPAs are long-term contracts to purchase power on a predetermined basis.

STOCK OPTIONS  TransCanada's Key Employee Stock Incentive Plan (KESIP) permits
the award of options to purchase the Company's common shares to certain key
employees, some of whom are officers. The contractual life of options granted
prior to 2003 and granted in 2003 is ten and seven years, respectively. Options
may be exercised at a price determined at the time the option is awarded.
Generally, for awards granted prior to 2003, 25 per cent of the options vest on
the award date and 25 per cent on each of the three following award date
anniversaries. For awards granted in 2003, no options vest on the award date and
33.3 per cent vest on each of the three following award date anniversaries.
Effective January 1, 2002, TransCanada adopted the fair value method of
accounting for stock options. The Company is recording compensation expense over
the three year vesting period. This charge is reflected in the Gas Transmission
and Power segments.

<Page>

62  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

INCOME TAXES  As prescribed by the regulators, the taxes payable method of
accounting for income taxes is used for tollmaking purposes for Canadian natural
gas transmission operations. Under the taxes payable method, it is not necessary
to provide for future income taxes. This method is also used for accounting
purposes, since there is reasonable expectation that future taxes payable will
be included in future costs of service and recorded in revenues at that time.
The liability method of accounting for income taxes is used for the remainder of
the Company's operations. Under this method, future tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases. Future income tax assets and
liabilities are measured using enacted or substantively enacted tax rates
expected to apply to taxable income in the years in which temporary differences
are expected to be recovered or settled. Changes to these balances are
recognized in income in the period in which they occur.

Canadian income taxes are not provided on the unremitted earnings of foreign
investments which are considered to be indefinitely reinvested in foreign
operations.

FOREIGN CURRENCY TRANSLATION  The Company's foreign operations are
self-sustaining and are translated into Canadian dollars using the current rate
method. Translation adjustments are reflected in the foreign exchange adjustment
in Shareholders' Equity.

Exchange gains or losses on the principal amounts of foreign currency debt,
junior subordinated debentures and preferred securities related to the Alberta
System and the Canadian Mainline are deferred until they are recovered in tolls.

DERIVATIVE FINANCIAL INSTRUMENTS  The Company utilizes derivative and other
financial instruments to manage its exposure to changes in foreign currency
exchange rates, interest rates and energy commodity prices. Gains or losses
relating to derivatives that are hedges are deferred and recognized in the same
period and in the same financial statement category as the gains or losses on
the corresponding hedged transactions. The recognition of gains and losses on
derivatives used as hedges for Alberta System, Canadian Mainline and the
Foothills System exposures is determined through the regulatory process.

A derivative must be designated and effective to be accounted for as a hedge.
For cash flow hedges, effectiveness is achieved if the changes in the cash flows
of the derivative substantially offset the changes in the cash flows of the
hedged position and the timing of the cash flows is similar. Effectiveness for
fair value hedges is achieved if the fair value of the derivative substantially
offsets changes in the fair value attributable to the hedged item. In the event
that a derivative does not meet the designation or effectiveness criterion, the
gain or loss on the derivative is recognized in income. If a derivative that
qualifies as a hedge is settled early, the gain or loss at settlement is
deferred and recognized when the gain or loss on the hedged transaction is
recognized. Premiums paid or received with respect to derivatives that are
hedges are deferred and amortized to income over the term of the hedge.

EMPLOYEE BENEFIT AND OTHER PLANS  The Company sponsors defined benefit pension
plans. The cost of defined benefit pensions and other post-employment benefits
earned by employees is actuarially determined using the projected benefit method
pro-rated on service and Management's best estimate of expected plan investment
performance, salary escalation, retirement ages of employees and expected health
care costs. Pension plan assets are measured at fair value. The expected return
on pension plan assets is determined using market-related values. Adjustments
arising from plan amendments are amortized on a straight-line basis over the
average remaining service period of employees active at the date of amendment.
The excess of the net actuarial gain or loss over 10 per cent of the greater of
the benefit obligation and the fair value of plan assets is amortized over the
average remaining service period of the active employees. The Company previously
sponsored two additional plans, a defined contribution plan and a combination of
the defined benefit and defined contribution plans, which were effectively
terminated at December 31, 2002.

The Company has broad-based medium-term employee incentive plans, which grant
units to each eligible employee. The units vest at the end of three years,
should certain conditions be met which include the employee's continued
employment during that period and achievement of specified corporate performance
targets. The Company is recording compensation expense over the three year
vesting period and the value of the units, net of income tax, will be paid at
the end of the vesting period.

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  63


NOTE 2  SEGMENTED INFORMATION

NET INCOME/LOSS (1)

<TABLE>
<CAPTION>
                                                              GAS
Year ended December 31, 2003 (millions of dollars)   TRANSMISSION           POWER       CORPORATE           TOTAL
---------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>                <C>             <C>                <C>
Revenues                                                    3,956           1,401              --           5,357
Cost of sales (2)                                              --            (692)             --            (692)
Other costs and expenses                                   (1,270)           (405)             (7)         (1,682)
Depreciation                                                 (831)            (82)             (1)           (914)
---------------------------------------------------------------------------------------------------------------------
Operating income/(loss)                                     1,855             222              (8)          2,069
Financial charges and non-controlling interests              (781)            (11)            (89)           (881)
Financial charges of joint ventures                           (76)             (1)             --             (77)
Equity income                                                  66              99              --             165
Interest and other income                                      17              14              29              60
Income taxes                                                 (459)           (103)             27            (535)
---------------------------------------------------------------------------------------------------------------------
Continuing Operations                                         622             220             (41)            801
========================================================================================================
Discontinued Operations                                                                                        50
                                                                                                        -------------
Net Income                                                                                                    851
=====================================================================================================================

Year ended December 31, 2002 (millions of dollars)
---------------------------------------------------------------------------------------------------------------------
Revenues                                                    3,921           1,293              --           5,214
Cost of sales (2)                                              --            (627)             --            (627)
Other costs and expenses                                   (1,166)           (371)             (9)         (1,546)
Depreciation                                                 (783)            (65)             --            (848)
---------------------------------------------------------------------------------------------------------------------
Operating income/(loss)                                     1,972             230              (9)          2,193
Financial charges and non-controlling interests              (821)            (13)            (91)           (925)
Financial charges of joint ventures                           (90)             --              --             (90)
Equity income                                                  33              --              --              33
Interest and other income                                      17              13              23              53
Income taxes                                                 (458)            (84)             25            (517)
---------------------------------------------------------------------------------------------------------------------
Continuing Operations                                         653             146             (52)            747
========================================================================================================
Discontinued Operations                                                                                        --
                                                                                                        -------------
Net income                                                                                                    747
=====================================================================================================================

Year ended December 31, 2001 (millions of dollars)
---------------------------------------------------------------------------------------------------------------------
Revenues                                                    3,880           1,395              --           5,275
Cost of sales (2)                                              --            (712)             --            (712)
Other costs and expenses                                   (1,226)           (361)            (31)         (1,618)
Depreciation                                                 (753)            (37)             (3)           (793)
---------------------------------------------------------------------------------------------------------------------
Operating income/(loss)                                     1,901             285             (34)          2,152
Financial charges and non-controlling interests              (856)            (15)            (85)           (956)
Financial charges of joint ventures                           (98)             (9)             --            (107)
Equity income                                                  24              --              --              24
Interest and other income                                       6              13              34              53
Income taxes                                                 (392)           (106)             18            (480)
---------------------------------------------------------------------------------------------------------------------
Continuing Operations                                         585             168             (67)            686
========================================================================================================
Discontinued Operations                                                                                       (67)
                                                                                                        -------------
NET INCOME                                                                                                    619
=====================================================================================================================
</TABLE>

(1)  In determining the net income of each segment, certain expenses such as
     indirect financial charges and related income taxes are not allocated to
     business segments.

(2)  Cost of sales is comprised of commodity purchases for resale.

<Page>

64  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


TOTAL ASSETS

<TABLE>
<CAPTION>
December 31 (millions of dollars)                    2003         2002
--------------------------------------------------------------------------
<S>                                                <C>          <C>
Gas Transmission                                   16,972       16,979
Power                                               2,746        2,391
Corporate                                             815          457
--------------------------------------------------------------------------
Continuing Operations                              20,533       19,827
Discontinued Operations                                11          139
--------------------------------------------------------------------------
                                                   20,544       19,966
==========================================================================
</TABLE>


GEOGRAPHIC INFORMATION

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)         2003      2002 (4)     2001
------------------------------------------------------------------------------------
<S>                                                 <C>       <C>          <C>
REVENUES (3)
Canada - domestic                                   3,257     2,731        3,303
Canada - export                                     1,293     1,641        1,329
United States                                         807       842          643
------------------------------------------------------------------------------------
                                                    5,357     5,214        5,275
====================================================================================
</TABLE>

(3)  Revenues are attributed to countries based on country of origin of product
     or service.

(4)  Canada - domestic revenues were reduced in 2002 as a result of
     transportation service credits of $662 million. These services were
     discontinued in 2003.


PLANT, PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
December 31 (millions of dollars)                           2003            2002
------------------------------------------------------------------------------------
<S>                                                       <C>             <C>
Canada                                                    15,193          15,479
United States                                              2,258           2,017
------------------------------------------------------------------------------------
                                                          17,451          17,496
====================================================================================
</TABLE>


CAPITAL EXPENDITURES

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)            2003      2002      2001
------------------------------------------------------------------------------------
<S>                                                     <C>       <C>       <C>
Gas Transmission                                         256       382       285
Power                                                    132       193       121
Corporate and Other                                        3        24        86
------------------------------------------------------------------------------------
                                                         391       599       492
====================================================================================
</TABLE>

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  65


NOTE 3  PLANT, PROPERTY AND EQUIPMENT

<TABLE>
<CAPTION>
December 31 (millions of dollars)                       2003                                        2002
----------------------------------------------------------------------------------------------------------------------------
                                                 ACCUMULATED            NET                   Accumulated            Net
                                         COST   DEPRECIATION     BOOK VALUE           Cost   Depreciation     Book Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                    <C>      <C>              <C>                <C>      <C>              <C>
GAS TRANSMISSION

Alberta System
   Pipeline                             4,934          1,908          3,026          4,922          1,755          3,167
   Compression                          1,507            549            958          1,517            479          1,038
   Metering and other                     862            211            651            919            237            682
----------------------------------------------------------------------------------------------------------------------------
                                        7,303          2,668          4,635          7,358          2,471          4,887
   Under construction                      13             --             13              4             --              4
----------------------------------------------------------------------------------------------------------------------------
                                        7,316          2,668          4,648          7,362          2,471          4,891
----------------------------------------------------------------------------------------------------------------------------
Canadian Mainline
   Pipeline                             8,683          3,176          5,507          8,674          2,933          5,741
   Compression                          3,318            832          2,486          3,291            709          2,582
   Metering and other                     404            132            272            429            118            311
----------------------------------------------------------------------------------------------------------------------------
                                       12,405          4,140          8,265         12,394          3,760          8,634
   Under construction                      12             --             12             15             --             15
----------------------------------------------------------------------------------------------------------------------------
                                       12,417          4,140          8,277         12,409          3,760          8,649
----------------------------------------------------------------------------------------------------------------------------
Foothills (1)
   Pipeline                               834            286            548
   Compression                            378            130            248
   Metering and other                     185            115             70
----------------------------------------------------------------------------------------------------------------------------
                                        1,397            531            866
----------------------------------------------------------------------------------------------------------------------------
Other Gas                               3,359          1,052          2,307          4,191          1,633          2,558
----------------------------------------------------------------------------------------------------------------------------
                                       24,489          8,391         16,098         23,962          7,864         16,098
----------------------------------------------------------------------------------------------------------------------------

POWER
   Power generation facilities          1,439            381          1,058          1,489            398          1,091
   Other                                   77             41             36             77             38             39
----------------------------------------------------------------------------------------------------------------------------
                                        1,516            422          1,094          1,566            436          1,130
   Under construction                     209             --            209            204             --            204
----------------------------------------------------------------------------------------------------------------------------
                                        1,725            422          1,303          1,770            436          1,334
----------------------------------------------------------------------------------------------------------------------------
CORPORATE                                 122             72             50            120             56             64
----------------------------------------------------------------------------------------------------------------------------
                                       26,336          8,885         17,451         25,852          8,356         17,496
============================================================================================================================
</TABLE>

(1)  On August 15, 2003, the Company acquired the remaining interests in
     Foothills previously not held by TransCanada, and Foothills was
     consolidated in the Company's financial statements subsequent to that date.

<Page>

66  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 4  OTHER ASSETS

<TABLE>
<CAPTION>
December 31 (millions of dollars)         2003      2002
------------------------------------------------------------
<S>                                      <C>       <C>
PPAs - Canada (1)                          278       297
PPAs - U.S. (1)                            248       325
Hedge contracts                            166        99
Loans and advances                         111        --
Pension asset                              143        70
Other                                      218       146
------------------------------------------------------------
                                         1,164       937
============================================================
</TABLE>

(1)  The following amounts related to the PPAs are included in the consolidated
     financial statements.

<TABLE>
<CAPTION>
December 31 (millions of dollars)                          2003                                     2002
----------------------------------------------------------------------------------------------------------------------------
                                                    ACCUMULATED            NET                Accumulated            Net
                                            COST   AMORTIZATION     BOOK VALUE        Cost   Amortization     Book Value
----------------------------------------------------------------------------------------------------------------------------
<S>                                         <C>    <C>              <C>               <C>    <C>              <C>
PPAs - Canada                                329             51            278         329             32            297
PPAS - U.S.                                  276             28            248         339             14            325
----------------------------------------------------------------------------------------------------------------------------
</TABLE>

Amortization expense with respect to the PPAs was $37 million for the year ended
December 31, 2003 (2002 - $28 million; 2001 - $18 million). In 2002, the Company
acquired $114 million of PPAs - U.S.


NOTE 5  JOINT VENTURE INVESTMENTS

<TABLE>
<CAPTION>
                                                                         TransCanada's
                                                                      Proportionate Share
--------------------------------------------------------------------------------------------------
                                                                 Income Before
                                                                 Income Taxes
                                                                  Year ended      Net Assets
                                                                  December 31     December 31
--------------------------------------------------------------------------------------------------
(millions of dollars)               OWNERSHIP INTEREST          2003  2002  2001   2003   2002
--------------------------------------------------------------------------------------------------
<S>                                 <C>                        <C>   <C>   <C>    <C>    <C>
GAS TRANSMISSION
Great Lakes                                      50.0% (1)        81   102    89    419    492
Iroquois                                         41.0% (2)        31    30    27    169    160
TC PipeLines, LP                                 33.4%            21    24    23    130    158
Trans Quebec & Maritimes                         50.0%            14    13    15     77     79
CrossAlta                                        60.0% (1)        11    21    15     41     35
Foothills                                              (3)        19    29    26     --    204
Other                                          Various             7     7     4     22     17

POWER
TransCanada Power, L.P.                          35.6% (4)        25    26    21    234    244
ASTC Power Partnership                           50.0% (5)        --    --    --     99    105
--------------------------------------------------------------------------------------------------
                                                                 209   252   220  1,191  1,494
==================================================================================================
</TABLE>

(1)  Great Lakes Gas Transmission Limited Partnership (Great Lakes); CrossAlta
     Gas Storage & Services Ltd. (CrossAlta).

(2)  In May 2001, the Company increased its interest in Iroquois Gas
     Transmission System (Iroquois) from 35.0 per cent to 41.0 per cent.

(3)  On August 15, 2003, the Company acquired the remaining interests in
     Foothills previously not held by TransCanada, and Foothills was
     consolidated subsequent to that date.

(4)  In October 2001, the Company's interest in TransCanada Power, L.P.
     decreased from 41.6 per cent to 35.6 per cent.

(5)  In December 2001, the Company purchased 50.0 per cent of ASTC Power
     Partnership, which is located in Alberta and holds a power purchase
     arrangement. In 2002, the underlying power volume related to the 50.0 per
     cent ownership interest in the Partnership was effectively transferred to
     TransCanada.

Consolidated retained earnings at December 31, 2003 include undistributed
earnings from these joint ventures of $509 million (2002 - $433 million).

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  67


SUMMARIZED FINANCIAL INFORMATION OF JOINT VENTURES

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)                              2003        2002        2001
----------------------------------------------------------------------------------------------------------
<S>                                                                      <C>         <C>         <C>
INCOME
Revenues                                                                   623         680         592
Other costs and expenses                                                  (275)       (251)       (172)
Depreciation                                                               (96)       (119)       (119)
Financial charges and other                                                (43)        (58)        (81)
----------------------------------------------------------------------------------------------------------
Proportionate share of income before income taxes of joint ventures        209         252         220
==========================================================================================================
</TABLE>

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)                              2003        2002        2001
----------------------------------------------------------------------------------------------------------
<S>                                                                      <C>         <C>         <C>
CASH FLOWS
Operations                                                                 272         323         279
Investing activities                                                      (124)       (125)         21
Financing activities                                                      (156)       (210)       (291)
----------------------------------------------------------------------------------------------------------
Proportionate share of (decrease)/increase in cash and short-term
   investments of joint ventures                                            (8)        (12)          9
==========================================================================================================
</TABLE>

<TABLE>
<CAPTION>
December 31 (millions of dollars)                                         2003        2002
----------------------------------------------------------------------------------------------
<S>                                                                      <C>         <C>
BALANCE SHEET
Cash and short-term investments                                             55          63
Other current assets                                                       122         127
Long-term investments                                                      118         148
Plant, property and equipment                                            1,688       2,503
Other assets and deferred amounts (net)                                    114         103
Current liabilities                                                        (94)       (164)
Non-recourse debt                                                         (761)     (1,222)
Future income taxes                                                        (51)        (64)
----------------------------------------------------------------------------------------------
Proportionate share of net assets of joint ventures                      1,191       1,494
==============================================================================================
</TABLE>


NOTE 6  LONG-TERM INVESTMENTS

<TABLE>
<CAPTION>
                                                                      TransCanada's Share
--------------------------------------------------------------------------------------------------------
                                                                 Income From
                                                              Equity Investments
                                                                  Year ended      Equity Investments
                                                                  December 31         December 31
--------------------------------------------------------------------------------------------------------
(millions of dollars)               OWNERSHIP INTEREST        2003   2002   2001    2003    2002
-------------------------------------------------------------------------------------------------------
<S>                                 <C>                       <C>    <C>    <C>     <C>     <C>
EQUITY INVESTMENTS
POWER
Bruce Power L.P.                                 31.6%          99     --     --     513      --
GAS TRANSMISSION
Northern Border                                  10.0% (1)      22     25     23     103     129
TransGas de Occidente S.A.                       46.5%          27      5      2      80      75
Portland                                         61.7% (2)      14      2     (1)     --      68
Other                                          Various           3      1     --      37      73
-------------------------------------------------------------------------------------------------------
                                                               165     33     24     733     345
=======================================================================================================
</TABLE>

(1)  The Northern Border equity investment effective ownership interest of 10.0
     per cent is the result of the Company holding a 33.4 per cent interest in
     TC PipeLines, LP, which holds a 30.0 per cent interest in Northern Border
     Pipeline Company (Northern Border).

(2)  In September 2003, the Company increased its ownership interest in Portland
     from 33.3 per cent to 43.4 per cent. In December 2003, the Company
     increased its ownership interest to 61.7 per cent and the investment was
     fully consolidated subsequent to that date.

Consolidated retained earnings at December 31, 2003 include undistributed
earnings from these equity investments of $166 million (2002 - $47 million).

<Page>

68  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


INVESTMENT IN BRUCE POWER L.P.  On February 14, 2003, the Company acquired a
31.6 per cent interest in Bruce Power L.P. (Bruce Power) for $409 million,
including closing adjustments. As part of the acquisition, the Company also
funded a one-third share ($75 million) of a $225 million accelerated deferred
rent payment made by Bruce Power to Ontario Power Generation. The resulting note
receivable from Bruce Power is recorded in Other Assets.

The purchase price of the Company's 31.6 per cent interest in Bruce Power has
been allocated as follows.

PURCHASE PRICE ALLOCATION

<TABLE>
<CAPTION>
(millions of dollars)
----------------------------------------------------------
<S>                                              <C>
Net book value of assets acquired                 281
Capital lease                                     301
Power sales agreements                           (131)
Pension liability and other                       (42)
----------------------------------------------------------
                                                  409
==========================================================
</TABLE>

The amount allocated to the investment in Bruce Power includes a purchase price
allocation of $301 million to the capital lease of the Bruce Power plant which
will be amortized on a straight-line basis over the lease term which extends to
2018, resulting in an annual amortization expense of $19 million. The amount
allocated to the power sales agreements will be amortized to income over the
remaining term of the underlying sales contracts. The amortization of the fair
value allocated to these contracts is: 2003 - $38 million; 2004 - $37 million;
2005 - $25 million; 2006 - $29 million; and 2007 - $2 million. The amount
allocated to the pension liability will be amortized to income over the 11 year
expected average remaining service life of Bruce Power employees, resulting in
an annual amortization of $3 million.

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  69


NOTE 7  LONG-TERM DEBT

<TABLE>
<CAPTION>
                                                                        2003                                2002
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                      WEIGHTED                      Weighted
                                                                                       AVERAGE                       Average
                                                      Maturity     OUTSTANDING        INTEREST      Outstanding     Interest
                                                         Dates     DECEMBER 31 (1)        RATE (2)  December 31 (1)     Rate (2)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>                <C>           <C>             <C>
ALBERTA SYSTEM
Debentures and Notes
   Canadian dollars                               2007 to 2024             627           11.6%              798        11.0%
   U.S. dollars (2003 and 2002 - US$500)          2004 to 2023             646            8.3%              790         8.3%
Medium-Term Notes
   Canadian dollars                               2005 to 2030             767            7.4%              767         7.4%
   U.S. dollars (2003 and 2002 - US$233)          2026 to 2029             301            7.7%              368         7.7%
Unsecured Loans
   U.S. dollars (2003 - nil; 2002 - US$107)               2003              --                              169         2.1%
-----------------------------------------------------------------------------------------------------------------------------------
                                                                         2,341                            2,892
Foreign exchange differential recoverable
   through the tollmaking process                                          (16)                            (271)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                         2,325                            2,621
-----------------------------------------------------------------------------------------------------------------------------------

CANADIAN MAINLINE
First Mortgage Pipe Line Bonds
   Pounds Sterling (2003 and 2002 - L25)                  2007              58          16.5%                64        16.5%
Debentures
   Canadian dollars                               2008 to 2020           1,354          10.9%             1,354        10.9%
   U.S. dollars (2003 and 2002 - US$800)          2012 to 2023           1,034           9.2%             1,264         9.2%
Medium-Term Notes
   Canadian dollars                               2004 to 2031           2,312           6.9%             2,405         7.0%
   U.S. dollars (2003 and 2002 - US$120)                  2010             155           6.1%               190         6.1%
-----------------------------------------------------------------------------------------------------------------------------------
                                                                         4,913                            5,277
-----------------------------------------------------------------------------------------------------------------------------------
Foreign exchange differential recoverable
   through the tollmaking process                                          (60)                            (330)
-----------------------------------------------------------------------------------------------------------------------------------
                                                                         4,853                            4,947
-----------------------------------------------------------------------------------------------------------------------------------

FOOTHILLS (3)
Senior Secured Notes                                      2005             80            4.3%
Senior Unsecured Notes                            2005 to 2014            300            4.7%
-----------------------------------------------------------------------------------------------------------------------------------
                                                                         380
-----------------------------------------------------------------------------------------------------------------------------------

PORTLAND (4)
Senior Secured Notes
   U.S. dollars (2003 - US$271)                           2018          350              5.9%
-----------------------------------------------------------------------------------------------------------------------------------

OTHER
Medium-Term Notes
   Canadian dollars                               2005 to 2030          592              6.2%               342         6.6%
   U.S. dollars (2003 and 2002 - US$665)          2004 to 2025          859              6.8%             1,050         6.8%
Subordinated Debentures
   U.S. dollars (2003 and 2002 - US$57)                   2006           74              9.1%                90         9.1%
Unsecured Loans, Debentures and Notes
   Canadian dollars                                       2003           --                                 110         8.4%
   U.S. dollars (2003 - US$446;
     2002 - US$109)                               2006 to 2013          582              4.9%               172         8.3%
-----------------------------------------------------------------------------------------------------------------------------------
                                                                      2,107                              1,764
-----------------------------------------------------------------------------------------------------------------------------------
                                                                     10,015                              9,332
Less: Current Portion of Long-Term Debt                                 550                                517
-----------------------------------------------------------------------------------------------------------------------------------
                                                                      9,465                              8,815
===================================================================================================================================
</TABLE>

<Page>

70  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  Amounts outstanding are stated in millions of Canadian dollars; amounts
     denominated in currencies other than Canadian dollars are stated in
     millions.

(2)  Weighted average interest rates are stated as at the respective outstanding
     dates. The effective weighted average interest rates resulting from swap
     agreements are as follows: Alberta System U.S. dollar unsecured loans in
     2002 - 8.3 per cent; Foothills senior unsecured notes - 5.8 per cent;
     Portland senior secured notes - 6.2 per cent; Other U.S. dollar
     subordinated debentures - 9.0 per cent (2002 - 9.0 per cent); and Other
     U.S. dollar unsecured loans, debentures and notes - 5.2 per cent.

(3)  On August 15, 2003, the Company acquired the remaining interests in
     Foothills previously not held by TransCanada, and Foothills was
     consolidated in the Company's financial statements subsequent to that date.

(4)  On December 3, 2003, TransCanada increased its ownership interest in
     Portland from 43.4 per cent to 61.7 per cent. The investment was fully
     consolidated in the Company's financial statements subsequent to that date.

PRINCIPAL REPAYMENTS  Principal repayments on the long-term debt of the Company
approximate: 2004 - $550 million; 2005 - $702 million; 2006 - $399 million;
2007 - $611 million; and 2008 - $542 million.

UNIVERSAL SHELF PROGRAMS  At December 31, 2003, $1.6 billion of common shares,
preferred shares and/or debt securities including medium-term notes could be
issued under a universal shelf program in Canada and US$650 million of debt
securities could be issued under a universal shelf program in the U.S. During
2003, $450 million of medium-term notes and US$350 million of senior unsecured
notes were issued under these programs.

ALBERTA SYSTEM

DEBENTURES  Debentures amounting to $225 million have retraction provisions
which entitle the holders to require redemption of up to 8 per cent of the then
outstanding principal plus accrued and unpaid interest on specified repayment
dates. No redemptions have been made to December 31, 2003.

MEDIUM-TERM NOTES  Medium-term notes amounting to $50 million have a provision
entitling the holders to extend the maturity of the medium-term notes from the
initial repayment date of 2007 to 2027. If extended, the interest rate would
increase from 6.1 per cent to 7.0 per cent and the medium-term notes would
become redeemable at the option of the Company.

CANADIAN MAINLINE

FIRST MORTGAGE PIPE LINE BONDS  The Deed of Trust and Mortgage securing the
Company's First Mortgage Pipe Line Bonds limits the specific and floating
charges to those assets comprising the present and future Canadian Mainline and
the Company's present and future gas transportation contracts.

FOOTHILLS

SENIOR SECURED NOTES  Foothills has issued and pledged to the banks a demand
debenture in the principal amount of $200 million as security for funds advanced
under the credit agreement. Foothills has also granted a floating charge on its
undertakings, property and assets.

OTHER

MEDIUM-TERM NOTES  Medium-term notes amounting to US$145 million and
$150 million have retraction provisions which entitle the holders to require
redemption of the principal plus accrued and unpaid interest in 2004 and 2005,
respectively. The Company also has the option to redeem the US$145 million
medium-term notes in 2004. If the U.S. dollar medium-term notes remain
outstanding, the interest rate will change in 2004 from 6.4 per cent to
6.1 per cent plus a market-based corporate credit spread.

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  71


FINANCIAL CHARGES

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)        2003      2002      2001
--------------------------------------------------------------------------------
<S>                                                 <C>       <C>       <C>
Interest on long-term debt                           801       850       890
Regulatory deferrals and amortizations               (14)      (17)      (30)
Short-term interest and other financial charges       34        34        38
--------------------------------------------------------------------------------
                                                     821       867       898
Financial charges - discontinued operations           --        --        (9)
--------------------------------------------------------------------------------
                                                     821       867       889
================================================================================
</TABLE>

The Company made interest payments of $846 million for the year ended December
31, 2003 (2002 - $866 million; 2001 - $936 million). The Company capitalized $9
million of interest for the year ended December 31, 2003 (2002 and 2001 - nil).


NOTE 8  NON-RECOURSE DEBT OF JOINT VENTURES

<TABLE>
<CAPTION>
                                                                        2003                                2002
-----------------------------------------------------------------------------------------------------------------------------------
                                                                                      WEIGHTED                      Weighted
                                                                                       AVERAGE                       Average
                                                      Maturity     OUTSTANDING        INTEREST      Outstanding     Interest
                                                         Dates     DECEMBER 31 (1)        RATE (2)  December 31 (1)     Rate (2)
-----------------------------------------------------------------------------------------------------------------------------------
<S>                                               <C>              <C>                <C>           <C>             <C>
GREAT LAKES
Senior Unsecured Notes
   (2003 - US$240; 2002 - US$261)                 2011 to 2030             310            7.9%              412         8.0%
IROQUOIS
Senior Unsecured Notes
   (2003 and 2002 - US$151)                       2010 to 2027             196            7.5%              239         7.5%
Bank Loan
   (2003 - US$43; 2002 - US$16)                           2008              56            2.3%               25         3.2%
FOOTHILLS (3)
Senior Unsecured Notes                                                                                      325         3.3%
Senior Secured Notes                                                                                         62         6.7%
TRANS QUEBEC & MARITIMES
Bonds                                             2005 to 2010             143            7.3%              143         7.3%
Term Loan                                                 2006              34            3.5                40         2.8%
TC PIPELINES, LP
Senior Unsecured Notes (2002 - US$4)                                        --                                6         3.0%
OTHER                                             2004 to 2012              41            5.4%               45         5.6%
-----------------------------------------------------------------------------------------------------------------------------------
                                                                           780                            1,297
Less: Current Portion of
   Non-Recourse Debt of Joint Ventures                                      19                               75
-----------------------------------------------------------------------------------------------------------------------------------
                                                                           761                            1,222
===================================================================================================================================
</TABLE>

(1)  Amounts outstanding represent TransCanada's proportionate share and are
     stated in millions of Canadian dollars; amounts denominated in U.S. dollars
     are stated in millions.

(2)  Weighted average interest rates are stated as at the respective outstanding
     dates. At December 31, 2003, the effective weighted average interest rate
     on the bank loan of Iroquois resulting from a swap agreement is 4.5 per
     cent (2002 - 4.8 per cent).

(3)  On August 15, 2003, the Company acquired the remaining interests in
     Foothills previously not held by TransCanada, and Foothills was
     consolidated in the Company's financial statements subsequent to that date.

The debt of joint ventures is non-recourse to TransCanada. The security provided
by each joint venture is limited to the rights and assets of that joint venture
and does not extend to the rights and assets of TransCanada, except to the
extent of TransCanada's investment.

The Company's proportionate share of principal repayments resulting from
maturities and sinking fund obligations of the non-recourse joint venture
debt approximates: 2004 - $19 million; 2005 -$69 million; 2006 - $55 million;
2007 - $19 million; and 2008 - $19 million.

The Company's proportionate share of the interest payments of joint ventures was
$67 million for the year ended December 31, 2003 (2002 - $88 million; 2001 -
$100 million).

<Page>

72  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 9  NON-CONTROLLING INTERESTS AND PREFERRED SECURITIES

The Company's non-controlling interests included in the Consolidated Balance
Sheet are as follows:


<TABLE>
<CAPTION>
December 31 (millions of dollars)                            2003           2002
------------------------------------------------------------------------------------
<S>                                                         <C>            <C>
Preferred securities of subsidiary                            672            674
Preferred shares of subsidiary                                389            389
Other                                                          82             --
------------------------------------------------------------------------------------
                                                            1,143          1,063
====================================================================================
</TABLE>

The Company's non-controlling interests included in the Consolidated Income
Statement are as follows:

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)              2003     2002     2001
------------------------------------------------------------------------------------
<S>                                                       <C>      <C>      <C>
Preferred securities charges                                36       36       45
Preferred share dividends                                   22       22       22
Other                                                        2       --       --
------------------------------------------------------------------------------------
                                                            60       58       67
====================================================================================
</TABLE>

PREFERRED SECURITIES OF SUBSIDIARY  The US$460 million 8.25 per cent Preferred
Securities of subsidiary (Preferred Securities) are redeemable by the issuer at
par at any time. The issuer may elect to defer interest payments on the
Preferred Securities and settle the deferred interest in either cash or common
shares.

Since the deferred interest may be settled through the issuance of common shares
at the option of the issuer, the Preferred Securities are classified into their
respective debt and non-controlling interest components. At December 31, 2003,
the debt component of the Preferred Securities is $22 million (US$14 million)
(2002 - $20 million (US$13 million)) and the non-controlling interest component
of the Preferred Securities is $672 million (US$446 million) (2002 - $674
million (US$447 million)).

PREFERRED SHARES OF SUBSIDIARY

<TABLE>
<CAPTION>
                                                            Dividend  Redemption
                                                   Number       Rate       Price
December 31                                     of Shares  Per Share   Per Share      2003     2002
------------------------------------------------------------------------------------------------------------
                                              (thousands)                             (millions of dollars)
<S>                                           <C>          <C>        <C>             <C>      <C>
CUMULATIVE FIRST PREFERRED SHARES
OF SUBSIDIARY
Series U                                            4,000      $2.80      $50.00       195      195
Series Y                                            4,000      $2.80      $50.00       194      194
------------------------------------------------------------------------------------------------------------
                                                                                       389      389
============================================================================================================
</TABLE>

The authorized number of Preferred Shares of subsidiary issuable in series is
unlimited. All of the cumulative first preferred shares of subsidiary are
without par value.

On or after October 15, 2013, for the Series U shares, and on or after March 5,
2014, for the Series Y shares, the issuer may redeem the shares at $50 per
share.

OTHER  Other non-controlling interests are primarily comprised of the 38.3 per
cent non-controlling interest in Portland.

JUNIOR SUBORDINATED DEBENTURES  On July 3, 2003, the Company redeemed the
US$160 million, 8.75 per cent Junior Subordinated Debentures. Holders of these
debentures received US$25.0122 per US$25.00 of the principal amount, which
included accrued and unpaid interest to the redemption date, without premium or
penalty. At December 31, 2002, Preferred Securities included $218 million of
Junior Subordinated Debentures.

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  73


NOTE 10  COMMON SHARES

<TABLE>
<CAPTION>
                                                         Number
                                                      of Shares           Amount
------------------------------------------------------------------------------------
                                                     (thousands)       (millions
                                                                      of dollars)
<S>                                                  <C>              <C>
Outstanding at January 1, 2001                          474,913            4,540
   Exercise of options                                    1,718               24
------------------------------------------------------------------------------------
Outstanding at December 31, 2001                        476,631            4,564
   Exercise of options                                    2,871               50
------------------------------------------------------------------------------------
Outstanding at December 31, 2002                        479,502            4,614
   Exercise of options                                    3,698               65
------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 2003                        483,200            4,679
====================================================================================
</TABLE>

COMMON SHARES ISSUED AND OUTSTANDING  The Company is authorized to issue an
unlimited number of common shares of no par value.

NET INCOME PER SHARE  Basic and diluted earnings per share are calculated based
on the weighted average number of common shares outstanding during the year of
481.5 million and 483.9 million (2002 - 478.3 million and 480.7 million; 2001 -
475.8 million and 477.6 million), respectively. The increase in the weighted
average number of shares for the diluted earnings per share calculation is due
to the options exercisable under KESIP.

STOCK OPTIONS

<TABLE>
<CAPTION>
                                              Number  Weighted Average      Options
                                          of Options   Exercise Prices  Exercisable
---------------------------------------------------------------------------------------
                                          (thousands)                    (thousands)
<S>                                       <C>         <C>               <C>
Outstanding at January 1, 2001                15,391            $18.25       12,102
Granted                                        2,142            $18.07
Exercised                                     (1,718)           $14.08
Cancelled or expired                          (1,365)           $21.45
---------------------------------------------------------------------------------------
Outstanding at December 31, 2001              14,450            $18.42       11,376
Granted                                        1,946            $21.43
Exercised                                     (2,871)           $17.18
Cancelled or expired                            (633)           $23.16
---------------------------------------------------------------------------------------
Outstanding at December 31, 2002              12,892            $18.92       10,258
Granted                                        1,503            $22.42
Exercised                                     (3,698)           $17.59
Cancelled or expired                            (342)           $24.07
---------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 2003              10,355            $19.73        7,588
=======================================================================================
</TABLE>

The following table summarizes information for stock options outstanding at
December 31, 2003.

<TABLE>
<CAPTION>
                                         Options Outstanding                         Options Exercisable
------------------------------------------------------------------------------------------------------------------
                                               Weighted
                                                Average           Weighted                            Weighted
Range of                  Number              Remaining            Average          Number             Average
Exercise Prices       of Options       Contractual Life     Exercise Price      of Options      Exercise Price
------------------------------------------------------------------------------------------------------------------
                      (thousands)                (years)                        (thousands)
<S>                   <C>              <C>                  <C>                 <C>             <C>
$10.03 to $17.08           1,557                    5.8             $11.85           1,557              $11.85
$18.01 to $19.00           1,924                    6.9             $18.17           1,548              $18.20
$19.16 to $20.58           1,820                    4.9             $20.14           1,796              $20.15
$20.59 to $21.86           2,070                    7.9             $21.41           1,180              $21.39
$22.33 to $22.85           1,535                    9.0             $22.36             101              $22.79
$24.49 to $25.53           1,449                    4.4             $24.58           1,406              $24.55
------------------------------------------------------------------------------------------------------------------
                          10,355                    6.5             $19.73           7,588              $19.09
==================================================================================================================
</TABLE>

<Page>

74  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


At December 31, 2003, an additional five million common shares have been
reserved for future issuance under KESIP. In 2003, TransCanada issued 1,503,200
options to purchase common shares at a weighted average price of $22.42 under
the Company's KESIP and the weighted average fair value of each option was
$2.54. The Company used the Black-Scholes model for these calculations with the
weighted average assumptions being four years of expected life, 4.1 per cent
interest rate, 18 per cent volatility and 4.5 per cent dividend yield. The
amount expensed for stock options, with a corresponding increase in contributed
surplus for the year ended December 31, 2003, was $2 million (2002 - $2
million).

SHAREHOLDER RIGHTS PLAN  The Company's Shareholder Rights Plan is designed to
encourage the fair treatment of shareholders in connection with any takeover
offer for the Company. Under certain circumstances, each common share is
entitled to one right which entitles certain holders to purchase common shares
of the Company at 50 per cent of the then market price.


NOTE 11  RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

The Company issues short-term and long-term debt including amounts in foreign
currencies, purchases and sells energy commodities and invests in foreign
operations. These activities result in exposures to interest rates, energy
commodity prices and foreign currency exchange rates. The Company uses
derivatives to manage the risk that results from these activities.

CARRYING VALUES OF DERIVATIVES  The carrying amounts of derivatives, which hedge
the price risk of foreign currency denominated assets and liabilities of
self-sustaining foreign operations are recorded on the balance sheet at their
fair value. Gains and losses on the derivatives, realized and unrealized, are
included in the foreign exchange adjustment account in Shareholders' Equity as a
reduction of the corresponding gains and losses on the translation of the assets
and liabilities of the foreign subsidiaries. Carrying amounts for interest rate
swaps represent the net accrued interest from the last payment date to the
reporting date. Foreign currency transactions hedged by foreign exchange
contracts are recorded at the contract rate. Power, natural gas and heat rate
derivatives are recorded on the balance sheet at their fair value. The carrying
amounts shown in the tables that follow are recorded in the Consolidated Balance
Sheet.

FAIR VALUES OF FINANCIAL INSTRUMENTS  Cash and short-term investments and
notes payable are valued at their carrying amounts due to the short period to
maturity. The fair values of long-term debt, non-recourse long-term debt of
joint ventures and junior subordinated debentures are determined using market
prices for the same or similar issues.

The fair values of foreign exchange and interest rate derivatives have been
estimated using year-end market rates. These fair values approximate the amount
that the Company would receive or pay if the instruments were closed out at
these dates.

CREDIT RISK  Credit risk results from the possibility that a counterparty to a
derivative in which the Company has an unrealized gain fails to perform
according to the terms of the contract. Credit exposure is minimized through the
use of established credit management techniques, including formal assessment
processes, contractual and collateral requirements and credit exposure limits.
At December 31, 2003, for foreign currency and interest rate derivatives, total
credit risk and the largest credit exposure to a single counterparty were $127
million and $29 million, respectively. At December 31, 2003, for power, natural
gas and heat rate derivatives, total credit risk and the largest credit exposure
to a single counterparty were $67 million and $61 million, respectively.

NOTIONAL AMOUNTS  Notional principal amounts are not recorded in the financial
statements because these amounts are not exchanged by the Company and its
counterparties and are not a measure of the Company's exposure. Notional amounts
are used only as the basis for calculating payments for certain derivatives.

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  75

FOREIGN INVESTMENTS  At December 31, 2003 and 2002, the Company had foreign
currency denominated assets and liabilities which created an exposure to changes
in exchange rates. The Company uses foreign currency derivatives to hedge this
net exposure on an after-tax basis. The foreign currency derivatives have a
floating interest rate exposure which the Company partially hedges by entering
into interest rate swaps and forward rate agreements. The Company's portfolio of
foreign investment derivatives is comprised of contracts for periods up to four
years. The fair values shown in the table below for foreign exchange risk are
offset by translation gains or losses on the net assets and are recorded in the
foreign exchange adjustment account in Shareholders' Equity.

ASSET/(LIABILITY)

<TABLE>
<CAPTION>
                                                2003                      2002
----------------------------------------------------------------------------------------
                                        CARRYING      FAIR        Carrying      Fair
December 31 (millions of dollars)         AMOUNT     VALUE          Amount     Value
----------------------------------------------------------------------------------------
<S>                                     <C>          <C>          <C>          <C>
FOREIGN EXCHANGE
Cross-currency swaps
    U.S. dollars                              65        65              (8)       (8)
Forward foreign exchange contracts
    U.S. dollars                               2         3              (4)       (4)
----------------------------------------------------------------------------------------
</TABLE>

At December 31, 2003, the notional principal amounts of cross-currency swaps
were US$250 million (2002 - US$350 million) and principal amounts of forward
foreign exchange contracts were US$125 million (2002 - US$225 million). In
addition, the Company has associated interest rate swaps with notional principal
amounts of $311 million (2002 - $309 million) and US$200 million (2002 -
US$350 million). The fair value of these interest rate swaps was $1 million
(2002 - $(4) million).

RECONCILIATION OF FOREIGN EXCHANGE ADJUSTMENT

<TABLE>
<CAPTION>
December 31 (millions of dollars)                                         2003      2002
--------------------------------------------------------------------------------------------
<S>                                                                       <C>       <C>
Balance at beginning of year                                                14        13
Translation (losses)/gains on foreign currency denominated net assets     (136)        3
Foreign exchange gains/(losses) on derivatives, and other                   82        (2)
--------------------------------------------------------------------------------------------
                                                                           (40)       14
============================================================================================
</TABLE>

FOREIGN EXCHANGE GAINS/(LOSSES)  Foreign exchange gains/(losses) included in
Other Expenses/(Income) for the year ended December 31, 2003 are $(2) million
(2002 - $(12) million; 2001 - $1 million).

FOREIGN EXCHANGE AND INTEREST RATE MANAGEMENT ACTIVITY  The Company manages the
foreign exchange risk of U.S. dollar debt, U.S. dollar expenses and the interest
rate exposures of the Alberta System, the Canadian Mainline and the Foothills
System through the use of foreign currency and interest rate derivatives. These
derivatives are comprised of contracts for periods up to nine years. Certain of
the realized gains and losses on these derivatives are shared with shippers on
predetermined terms.

ASSET/(LIABILITY)

<TABLE>
<CAPTION>
                                                2003                      2002
----------------------------------------------------------------------------------------
                                        CARRYING      FAIR        Carrying      Fair
December 31 (millions of dollars)         AMOUNT     VALUE          Amount     Value
----------------------------------------------------------------------------------------
<S>                                     <C>          <C>          <C>          <C>
FOREIGN EXCHANGE
Cross-currency swaps                         (26)      (26)             56        56
INTEREST RATE
Interest rate swaps
    Canadian dollars                           2        15               4        56
    U.S. dollars                              --         8              (1)        4
----------------------------------------------------------------------------------------
</TABLE>

<Page>

76  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

At December 31, 2003, the notional principal amounts of cross-currency
swaps were US$282 million (2002 - US$282 million) and the notional principal
amounts for interest rate swaps were $964 million (2002 - $874 million) and
US$100 million (2002 - US$175 million).

The Company manages the foreign exchange risk and interest rate exposure of its
Other U.S. dollar debt through the use of foreign currency and interest rate
derivatives. These derivatives are comprised of contracts for periods up to ten
years. The fair values of the interest rate derivatives are shown in the table
below.

ASSET/(LIABILITY)

<TABLE>
<CAPTION>
                                                2003                      2002
----------------------------------------------------------------------------------------
                                        CARRYING      FAIR        Carrying      Fair
December 31 (millions of dollars)         AMOUNT     VALUE          Amount     Value
----------------------------------------------------------------------------------------
<S>                                     <C>          <C>          <C>          <C>
INTEREST RATE
Interest rate swaps
    U.S. dollars                               2        37               2        55
----------------------------------------------------------------------------------------
</TABLE>

At December 31, 2003, the notional principal amount for interest rate swaps was
US$500 million (2002 - US$400 million).

ENERGY PRICE RISK MANAGEMENT  The Company executes power, natural gas and heat
rate derivatives for overall management of its asset portfolio. The Company's
portfolio of power, natural gas and heat rate derivatives is primarily comprised
of swap, option and forward contracts for periods of up to 13 years, with fixed
and floating price commitments. Heat rate contracts are contracts for the sale
or purchase of power that are priced based on a natural gas index. The fair
values of power, natural gas and heat rate derivatives have been calculated at
year-end using estimated forward prices for the relevant period. The fair values
and notional volumes of the swap, option, forward and heat rate contracts are
shown in the tables below.

ASSET/(LIABILITY)

<TABLE>
<CAPTION>
                                                2003                      2002
----------------------------------------------------------------------------------------
                                        CARRYING      FAIR        Carrying      Fair
December 31 (millions of dollars)         AMOUNT     VALUE          Amount     Value
----------------------------------------------------------------------------------------
<S>                                     <C>          <C>          <C>          <C>
Power - swaps                                 (5)       (5)            (36)      (36)
Gas - swaps, forwards and options            (35)      (35)            (28)      (28)
Heat rate contracts                            61        61             74        74
----------------------------------------------------------------------------------------
</TABLE>

NOTIONAL VOLUMES

<TABLE>
<CAPTION>
                                            POWER (GWH) (1)           GAS (BCF) (1)
----------------------------------------------------------------------------------------
DECEMBER 31, 2003                         PURCHASES     SALES     PURCHASES     SALES
----------------------------------------------------------------------------------------
<S>                                       <C>           <C>       <C>           <C>
Power - swaps                                 1,390     4,864            --        --
Gas - swaps, forwards and options                --        --          86.1      88.2
Heat rate contracts                           2,331       735           1.0      20.3
----------------------------------------------------------------------------------------
</TABLE>

<TABLE>
<CAPTION>
                                              Power (Gwh)              Gas (Bcf)
----------------------------------------------------------------------------------------
December 31, 2002                         Purchases     Sales     Purchases     Sales
----------------------------------------------------------------------------------------
<S>                                       <C>           <C>       <C>           <C>
Power - swaps                                   467     5,138            --        --
Gas - swaps, forwards and options                --        --          86.3      88.6
Heat rate contracts                           2,848        --            --      24.8
----------------------------------------------------------------------------------------
</TABLE>

(1)  Gigawatt hours (GWh); billion cubic feet (Bcf).

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  77

U.S. DOLLAR TRANSACTION HEDGES  To reduce risk and protect margins when purchase
and sale contracts are denominated in different currencies, the Company may
enter into forward foreign exchange contracts and foreign exchange options which
establish the foreign exchange rate for the cash flows from the related purchase
and sale transactions.

OTHER FAIR VALUES

<TABLE>
<CAPTION>
                                                2003                      2002
----------------------------------------------------------------------------------------
                                        CARRYING      FAIR        Carrying      Fair
December 31 (millions of dollars)         AMOUNT     VALUE          Amount     Value
----------------------------------------------------------------------------------------
<S>                                     <C>          <C>          <C>          <C>
LONG-TERM DEBT
Alberta System                             2,341     2,893           2,892     3,420
Canadian Mainline                          4,913     5,922           5,277     6,080
Foothills (1)                                380       382
Portland (2)                                 350       348
Other                                      2,107     2,214           1,764     1,904
NON-RECOURSE DEBT OF JOINT VENTURES          780       889           1,297     1,427
PREFERRED SECURITIES                          19        19             274       276
----------------------------------------------------------------------------------------
</TABLE>

(1)  On August 15, 2003, TransCanada acquired the remaining interests in
     Foothills previously not held by TransCanada, and Foothills was
     consolidated in the Company's financial statements subsequent to that date.

(2)  On December 3, 2003, TransCanada increased its ownership interest in
     Portland from 43.4 per cent to 61.7 per cent. The investment was fully
     consolidated in the Company's financial statements subsequent to that date.

These fair values are provided solely for information purposes and are not
recorded in the Consolidated Balance Sheet.


NOTE 12  INCOME TAXES

PROVISION FOR INCOME TAXES

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)    2003    2002    2001
------------------------------------------------------------------------
<S>                                             <C>     <C>     <C>
CURRENT
Canada                                           264     229     307
Foreign                                           41      41      46
------------------------------------------------------------------------
                                                 305     270     353
========================================================================
FUTURE
Canada                                           183     193      70
Foreign                                           47      54      57
------------------------------------------------------------------------
                                                 230     247     127
------------------------------------------------------------------------
                                                 535     517     480
========================================================================
</TABLE>

<Page>

78  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


GEOGRAPHIC COMPONENTS OF INCOME

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)                              2003         2002         2001
------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>          <C>
Canada                                                                   1,115        1,042          933
Foreign                                                                    281          280          300
------------------------------------------------------------------------------------------------------------
Income from continuing operations before income taxes                    1,396        1,322        1,233
============================================================================================================
</TABLE>

RECONCILIATION OF INCOME TAX EXPENSE

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)                              2003         2002         2001
------------------------------------------------------------------------------------------------------------
<S>                                                                      <C>          <C>          <C>
Income from continuing operations before income taxes                    1,396        1,322        1,233
------------------------------------------------------------------------------------------------------------
Federal and provincial statutory tax rate                                 36.7%        39.2%        42.1%
Expected income tax expense                                                512          518          519
Unrecorded future income taxes related to regulated operations              29           (8)         (55)
Lower effective foreign tax rates                                           (2)         (13)         (13)
Large corporations tax                                                      28           30           31
Lower effective tax rate on equity in earnings of affiliates               (11)          (2)          (1)
Other                                                                      (21)          (8)          (1)
------------------------------------------------------------------------------------------------------------
Actual income tax expense                                                  535          517          480
============================================================================================================
</TABLE>


FUTURE INCOME TAX ASSETS AND LIABILITIES

<TABLE>
<CAPTION>
December 31 (millions of dollars)                                         2003         2002
-----------------------------------------------------------------------------------------------
<S>                                                                       <C>          <C>
Net operating and capital loss carryforwards                                28           91
Deferred costs                                                              50           49
Deferred revenue                                                            29           55
Alternative minimum tax credits                                             29           31
Other                                                                       24           41
-----------------------------------------------------------------------------------------------
                                                                           160          267
Less: Valuation allowance                                                   24           33
-----------------------------------------------------------------------------------------------
Future income tax assets, net of valuation allowance                       136          234
-----------------------------------------------------------------------------------------------
Difference in accounting and tax bases of plant, equipment and PPAs        396          345
Investments in subsidiaries and partnerships                               108          107
Other                                                                       59            8
-----------------------------------------------------------------------------------------------
Future income tax liabilities                                              563          460
-----------------------------------------------------------------------------------------------
Net future income tax liabilities                                          427          226
===============================================================================================
</TABLE>

The Company follows the taxes payable method of accounting for income taxes
related to the operations of the Canadian natural gas transmission operations.
If the liability method of accounting had been used, additional future income
tax liabilities in the amount of $1,758 million at December 31, 2003 (2002 -
$1,702 million) would have been recorded and would be recoverable from future
revenues.

UNREMITTED EARNINGS OF FOREIGN INVESTMENTS  Income taxes have not been provided
on the unremitted earnings of foreign investments which the Company intends to
indefinitely reinvest in foreign operations. If provision for these taxes had
been made, future income tax liabilities would increase by approximately $54
million at December 31, 2003 (2002 - $60 million).

INCOME TAX PAYMENTS  Income tax payments of $220 million were made during the
year ended December 31, 2003 (2002 - $257 million; 2001 - $292 million).

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  79


NOTE 13  NOTES PAYABLE

<TABLE>
<CAPTION>
                                         2003                          2002
-------------------------------------------------------------------------------------------
                                                 WEIGHTED                      Weighted
                                                  AVERAGE                       Average
                                            INTEREST RATE                 Interest Rate
                               OUTSTANDING   PER ANNUM AT    Outstanding   Per Annum at
                               DECEMBER 31    DECEMBER 31    December 31    December 31
-------------------------------------------------------------------------------------------
                                 (millions                     (millions
                                of dollars)                   of dollars)
<S>                            <C>          <C>              <C>          <C>
COMMERCIAL PAPER
    Canadian dollars                   367           2.7%            258           2.9%
    U.S. dollars                        --                            39           1.4%
-------------------------------------------------------------------------------------------
                                       367                           297
===========================================================================================
</TABLE>

Total credit facilities of $2.2 billion at December 31, 2003, were available to
support the Company's commercial paper programs and for general corporate
purposes. Of this total, $1.9 billion represents committed credit facilities of
which $1.5 billion represents a syndicated facility established in December
2002. This facility is comprised of a $1.0 billion tranche with a three year
term and a $500 million tranche with a 364 day term with a two year term out
option. Both tranches are extendible on an annual basis and are revolving unless
during a term out period. Both tranches were extended in December 2003, the
$1.0 billion tranche to December 2006 and the $500 million tranche to December
2004. The remaining committed facilities are non extendible, $60 million expires
in June 2004 and $320 million expires in June 2005.

At December 31, 2003, the Company had used approximately $217 million of its
total lines of credit for letters of credit and to support its ongoing
commercial arrangements. If drawn, interest on the lines of credit would be
charged at prime rates of Canadian chartered and U.S. banks and at other
negotiated financial bases. The cost to maintain the unused portion of the lines
of credit is approximately $2 million for the year ended December 31, 2003 (2002
- $1 million).


NOTE 14  EMPLOYEE FUTURE BENEFITS

The Company sponsors defined benefit pension plans (DB Plans) that cover
substantially all employees and sponsored a defined contribution pension plan
(DC Plan) which was effectively terminated at December 31, 2002. The DB Plans
are based on years of service and highest average earnings over three
consecutive years of employment. Under the DC Plan, Company contributions were
based on the participating employees' pensionable earnings. As a result of the
termination of the DC Plan, members of this plan were awarded retroactive
service credit under the DB Plans for all years of service. In exchange for past
service credit, members surrendered the accumulated assets in their DC Plan
accounts to the DB Plans as at December 31, 2002. This plan amendment resulted
in unamortized past service costs of $44 million. Past service costs are
amortized over the expected average remaining service life of employees, which
is an average of 12 years.

The Company also provides its employees with other post-employment benefits
other than pensions, including special termination benefits and defined life
insurance and medical benefits beyond those provided by government-sponsored
plans. Effective January 1, 2003, the Company combined its previously existing
other post-employment benefit plans into one plan for active employees and
provided existing retirees the option of adopting the provisions of the new
plan. This plan amendment resulted in unamortized past service costs of $7
million. Past service costs are amortized over the expected average remaining
life expectancy of former employees, which is approximately 19 years.

The expense for the DC Plan is nil for the year ended December 31, 2003 (2002 -
$6 million; 2001 - $7 million). In 2003, the Company also expensed $1 million
(2002 - nil; 2001 - nil) related to retirement savings plans for its U.S.
employees.

<Page>

80  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Information about the Company's DB Plans measured and valued at December 31 is
as follows.

<TABLE>
<CAPTION>
                                                                         Pension              Other
                                                                      Benefit Plans       Benefit Plans
------------------------------------------------------------------------------------------------------------
(millions of dollars)                                                 2003      2002      2003      2002
------------------------------------------------------------------------------------------------------------
<S>                                                                   <C>       <C>       <C>       <C>
CHANGE IN BENEFIT OBLIGATION
   Benefit obligation - beginning of year                              841       659        95        60
   Current service cost                                                 25        11         2         2
   Interest cost                                                        52        43         6         4
   Employee contributions                                                2         1        --        --
   Benefits paid                                                       (45)      (58)       (4)       (4)
   Actuarial loss                                                       66        93         7        26
   Acquisition of subsidiary                                            19        --        --        --
   Plan amendment                                                       --        92        --         7
------------------------------------------------------------------------------------------------------------
   Benefit obligation - end of year                                    960       841       106        95
------------------------------------------------------------------------------------------------------------

CHANGE IN PLAN ASSETS
   Plan assets at fair value - beginning of year                       621       573        --        --
   Actual return on plan assets                                         89         9        --        --
   Employer contributions                                              110        48         4         4
   Employee contributions                                                2         1        --        --
   Benefits paid                                                       (45)      (58)       (4)       (4)
   Acquisition of subsidiary                                            22        --        --        --
   Assets receivable from DC Plan                                       --        48        --        --
------------------------------------------------------------------------------------------------------------
   Plan assets at fair value - end of year                             799       621        --        --
------------------------------------------------------------------------------------------------------------
Funded status - plan deficit                                          (161)     (220)     (106)      (95)
Unamortized net actuarial loss                                         263       246        39        33
Unamortized past service costs                                          41        44         6         7
Unamortized transitional obligation related to regulated business       --        --        25        27
------------------------------------------------------------------------------------------------------------
Accrued benefit asset/(liability), net of valuation
   allowance of nil (1)                                                143        70       (36)      (28)
============================================================================================================
</TABLE>

(1)  Assets and liabilities are included in Other Assets and Deferred Amounts,
     respectively, in TransCanada's Consolidated Balance Sheet.

The Company's expected contributions for the year 2004 are approximately $80
million for the pension benefit plans and approximately $5 million for the other
benefit plans.

The significant weighted average actuarial assumptions adopted in measuring the
Company's benefit obligations at December 31 are as follows.

<TABLE>
<CAPTION>
                                                                         Pension              Other
                                                                      Benefit Plans       Benefit Plans
------------------------------------------------------------------------------------------------------------
                                                                      2003      2002      2003      2002
------------------------------------------------------------------------------------------------------------
<S>                                                                  <C>       <C>       <C>       <C>
Discount rate                                                        6.00%     6.25%     6.25%     6.50%
Rate of compensation increase                                        3.50%     3.75%
------------------------------------------------------------------------------------------------------------
</TABLE>

The significant weighted average actuarial assumptions adopted in measuring the
Company's net benefit plan expense for years ended December 31 are as follows.

<TABLE>
<CAPTION>
                                                     Pension                       Other
                                                  Benefit Plans                 Benefit Plans
-------------------------------------------------------------------------------------------------------
                                             2003      2002      2001      2003      2002      2001
-------------------------------------------------------------------------------------------------------
<S>                                         <C>       <C>       <C>       <C>       <C>       <C>
Discount rate                               6.25%     6.75%     6.80%     6.50%     6.85%     6.90%
Expected long-term rate of return
   on plan assets                           7.25%     7.52%     7.10%
Rate of compensation increase               3.75%     3.50%     3.50%
-------------------------------------------------------------------------------------------------------
</TABLE>

The overall expected long-term rate of return on plan assets is based on
historical and projected rates of return for both the portfolio in aggregate and
for each asset class in the portfolio. Assumed projected rates of return are
selected after analyzing historical experience and future expectations of the
level and volatility of returns. Asset class benchmark returns, asset mix and
anticipated benefit payments from plan assets are also considered in the
determination of the overall expected rate of return.

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  81


For measurement purposes, a 7.5 per cent annual rate of increase in the per
capita cost of covered health care benefits was assumed for 2004. The rate was
assumed to decrease gradually to 5.0 per cent for 2009 and remain at that level
thereafter. A one percentage point increase or decrease in assumed health care
cost trend rates would have the following effects.

<TABLE>
<CAPTION>
(millions of dollars)                                         Increase    Decrease
--------------------------------------------------------------------------------------
<S>                                                           <C>         <C>
Effect on total of service and interest cost components              1          (1)
Effect on post-employment benefit obligation                        11         (10)
--------------------------------------------------------------------------------------
</TABLE>

The Company's net benefit plan expense is as follows.

<TABLE>
<CAPTION>
                                                          Pension                       Other
                                                       Benefit Plans                 Benefit Plans
-----------------------------------------------------------------------------------------------------------
Year ended December 31 (millions of dollars)     2003      2002      2001      2003      2002      2001
-----------------------------------------------------------------------------------------------------------
<S>                                              <C>       <C>       <C>       <C>       <C>       <C>
Current service cost                               25        11        12         2         2         2
Interest cost                                      52        43        41         6         4         4
Expected return on plan assets                    (51)      (45)      (41)       --        --        --
Amortization of transitional obligation
   related to regulated business                   --        --        --         2         2         2
Amortization of net actuarial loss                  8         2        --         1        --        --
Amortization of past service costs                  3        --        --         1        --        --
-----------------------------------------------------------------------------------------------------------
                                                   37        11        12        12         8         8
Net benefit cost recognized -
   discontinued operations                         --        --         2        --        --        --
-----------------------------------------------------------------------------------------------------------
Net benefit cost recognized -
   continuing operations                           37        11        10        12         8         8
===========================================================================================================
</TABLE>

The Company's pension plan weighted average asset allocation at December 31, by
asset category, and weighted average target allocation at December 31, by asset
category, is as follows.

<TABLE>
<CAPTION>
                                             Percentage of                Target
                                              Plan Assets             Allocation
------------------------------------------------------------------------------------
Asset Category                            2003          2002                2003
------------------------------------------------------------------------------------
<S>                                       <C>           <C>           <C>
Debt securities                            47%           51%          35% TO 60%
Equity securities                          53%           49%          40% TO 65%
------------------------------------------------------------------------------------
                                          100%          100%
====================================================================================
</TABLE>

The assets of the pension plan are managed on a going concern basis subject to
legislative restrictions. The plan's investment policy is to maximize returns
within an acceptable risk tolerance. Pension assets are invested in a
diversified manner with consideration given to the demographics of the plan
participants.


NOTE 15  CHANGES IN OPERATING WORKING CAPITAL

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)        2003      2002      2001
--------------------------------------------------------------------------------
<S>                                                 <C>       <C>       <C>
Decrease/(increase) in accounts receivable            26       (45)       38
Decrease/(increase) in inventories                    15        (3)       52
Decrease/(increase) in other current assets           21       (53)      (12)
Increase in accounts payable                          52       120       105
(Decrease)/increase in accrued interest               (2)       14       (13)
--------------------------------------------------------------------------------
                                                     112        33       170
================================================================================
</TABLE>

<Page>

82  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16  COMMITMENTS, CONTINGENCIES AND GUARANTEES

COMMITMENTS  Future annual payments, net of sub-lease receipts, under the
Company's operating leases for various premises are approximately as follows.

<TABLE>
<CAPTION>
                                                   Minimum              Amounts
                                                     Lease          Recoverable         Net
Year ended December 31 (millions of dollars)      Payments     under Sub-Leases    Payments
-----------------------------------------------------------------------------------------------
<S>                                               <C>          <C>                 <C>
2004                                                    25                   (7)         18
2005                                                    25                   (7)         18
2006                                                    25                   (7)         18
2007                                                    24                   (7)         17
2008                                                    24                   (7)         17
-----------------------------------------------------------------------------------------------
</TABLE>

The operating lease agreements expire at various dates through 2011, with an
option to renew certain lease agreements for five years.

At December 31, 2003, TransCanada held a 35.6 per cent interest in TransCanada
Power, L.P. which is a publicly-held limited partnership. On June 30, 2017, the
partnership will redeem all units outstanding, not held directly or indirectly
by TransCanada, at their then fair market value, being the average of the fair
market values assigned thereto by independent valuators, plus all declared and
unpaid distributions of distributable cash thereon (the Redemption Price).
TransCanada is required to fund the Redemption Price in accordance with the
terms of the Power LP Partnership agreement.

On June 18, 2003, the Mackenzie Delta gas producers, the Aboriginal Pipeline
Group (APG) and TransCanada reached an agreement which governs TransCanada's
role in the Mackenzie Gas Pipeline Project. The project would result in a
natural gas pipeline being constructed from Inuvik, Northwest Territories to the
northern border of Alberta, where it would then connect with the Alberta System.
Under the agreement, TransCanada has agreed to finance the APG for its one-third
share of project definition phase costs. This share is estimated to be
approximately $90 million over three years. In the year ended December 31, 2003,
TransCanada funded $34 million of this loan which is included in Other Assets.
The ability to recover this investment is contingent upon the outcome of the
project.

CONTINGENCIES  The Canadian Alliance of Pipeline Landowners' Associations and
two individual landowners have commenced an action under Ontario's Class
Proceedings Act, 1992, against TransCanada and Enbridge Inc. for damages alleged
to arise from the creation of a control zone within 30 metres of the pipeline
pursuant to section 112 of the NEB Act. The Company believes the claim is
without merit and will vigorously defend the action. The Company has made no
provision for any potential liability. A liability, if any, would be dealt with
through the regulatory process.

The Company and its subsidiaries are subject to various other legal proceedings
and actions arising in the normal course of business. While the final outcome of
such legal proceedings and actions cannot be predicted with certainty, it is the
opinion of Management that the resolution of such proceedings and actions will
not have a material impact on the Company's consolidated financial position or
results of operations.

GUARANTEES  Upon acquisition of Bruce Power, the Company, together with Cameco
Corporation and BPC Generation Infrastructure Trust, guaranteed on a several
pro-rata basis certain contingent financial obligations of Bruce Power related
to operator licenses, the lease agreement, power sales agreements and contractor
services. TransCanada's share of the net exposure under these guarantees at
December 31, 2003 was estimated to be approximately $215 million. The terms of
the guarantees range from 2004 to 2018. The current carrying amount of the
liability related to these guarantees is nil and the fair value is approximately
$4 million.

TransCanada has guaranteed the equity undertaking of a subsidiary which supports
the payment, under certain conditions, of principal and interest on the US$195
million public debt obligations of TransGas de Occidente S.A. (TransGas). The
Company has a 46.5 per cent interest in TransGas. Under the terms of the
agreement, the Company severally with another major multinational company may be
required to fund more than their proportionate share of debt obligations of
TransGas in the event that the minority shareholders fail to contribute. Any
payments made by TransCanada under this agreement convert into share capital of
TransGas. The potential exposure is contingent on the impact of any change of
law on TransGas' ability to service the debt. From the issuance of the debt in
1995 to date, there has been no change in applicable law and thus no exposure to
TransCanada. The debt matures in 2010. The Company has made no provision related
to this guarantee.

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  83


NOTE 17  DISCONTINUED OPERATIONS

The Board of Directors approved plans to dispose of the Company's International,
Canadian Midstream, and certain other businesses (December Plan) and the Gas
Marketing business in December 1999 and July 2001, respectively. The Company's
disposals under both plans were substantially completed at December 31, 2001.

TransCanada's investments in Gasoducto del Pacifico, INNERGY Holdings S.A. and
P.T. Paiton Energy Company approved for disposal under the December Plan will be
accounted for as part of continuing operations as of December 31, 2003, due to
the length of time it has taken the Company to dispose of these assets. It is
the intention of the Company to continue with its plan to dispose of these
investments.

The Company mitigated certain of its remaining exposures associated with the
contingent liabilities related to the divested Gas Marketing operations by
acquiring from a subsidiary of Mirant Corporation (Mirant) certain contracts
under which it still had exposure in 2003, and simultaneously hedging the market
price exposures of these contracts. The Company remains contingently liable for
certain residual obligations. In 2003, $50 million of the original approximately
$100 million after-tax deferred gain was recognized in income. The remaining
after-tax deferred gain is included in Deferred Amounts.

At December 31, 2003, TransCanada reviewed the provision for loss on
discontinued operations and the deferred gain and concluded that the remaining
provision was adequate and the deferral of the remaining approximately $50
million of after-tax deferred gain related to the Gas Marketing business was
appropriate.

Revenues from discontinued operations for the year ended December 31, 2003
were $2 million (2002 - $36 million; 2001 - $12,895 million). Net
income/(loss) from discontinued operations for the year ended December 31,
2003 was $50 million, net of $29 million income taxes (2002 - nil; 2001 -
$(67) million, net of $(33) million income taxes). The provision for loss on
discontinued operations at December 31, 2003 was $41 million (2002 - $83
million). The provision for loss on discontinued operations is included in
Accounts Payable.

<Page>

84  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


NOTE 18  U.S. GAAP

The Company's consolidated financial statements have been prepared in accordance
with Canadian GAAP, which, in some respects, differ from U.S. GAAP. The effects
of these differences on the Company's financial statements are as follows.

CONDENSED STATEMENT OF CONSOLIDATED INCOME AND COMPREHENSIVE INCOME
IN ACCORDANCE WITH U.S. GAAP (1)

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars except per share amounts)              2003        2002        2001
-------------------------------------------------------------------------------------------------------------------
<S>                                                                              <C>         <C>         <C>
Revenues (2)                                                                      4,919       4,565       4,165
-------------------------------------------------------------------------------------------------------------------
Cost of sales (2)                                                                   592         441          47
Other costs and expenses                                                          1,663       1,532       1,609
Depreciation                                                                        819         729         675
-------------------------------------------------------------------------------------------------------------------
                                                                                  3,074       2,702       2,331
-------------------------------------------------------------------------------------------------------------------
Operating income                                                                  1,845       1,863       1,834
Other (income)/expenses
    Equity income (1) (3)                                                          (334)       (260)       (221)
    Other expenses (4) (5)                                                          863         872         953
    Income taxes                                                                    515         499         407
-------------------------------------------------------------------------------------------------------------------
                                                                                  1,044       1,111       1,139
-------------------------------------------------------------------------------------------------------------------
Income from continuing operations - U.S. GAAP                                       801         752         695
Net income/(loss) from discontinued operations - U.S. GAAP                           50          --         (67)
-------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of the application
    of accounting changes in accordance with U.S. GAAP                              851         752         628
Cumulative effect of the application of accounting changes, net of tax (2) (4)      (13)         --          (2)
-------------------------------------------------------------------------------------------------------------------
NET INCOME IN ACCORDANCE WITH U.S. GAAP                                             838         752         626
Adjustments affecting comprehensive income under U.S. GAAP
    Foreign currency translation adjustment, net of tax (6)                         (54)          1          --
    Additional minimum liability for employee future benefits, net of tax (7)        (2)        (40)        (56)
    Unrealized gain/(loss) on derivatives, net of tax (4)                             8          (4)         (5)
-------------------------------------------------------------------------------------------------------------------
Comprehensive income before cumulative effect of the application
    of accounting changes in accordance with U.S. GAAP                              790         709         565
Cumulative effect of the application of accounting changes,
    net of tax (4)                                                                   --          --          (4)
-------------------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP                                   790         709         561
-------------------------------------------------------------------------------------------------------------------
NET INCOME/(LOSS) PER SHARE IN ACCORDANCE WITH U.S. GAAP
    Continuing operations                                                        $ 1.67      $ 1.57      $ 1.46
    Discontinued operations                                                        0.10          --       (0.14)
-------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of the application
    of accounting changes in accordance with U.S. GAAP                           $ 1.77      $ 1.57      $ 1.32
Cumulative effect of the application of accounting changes, net of tax (2) (4)    (0.03)         --          --
-------------------------------------------------------------------------------------------------------------------
    Basic                                                                        $ 1.74      $ 1.57      $ 1.32
===================================================================================================================
    Diluted                                                                      $ 1.73      $ 1.56      $ 1.32
===================================================================================================================
NET INCOME PER SHARE IN ACCORDANCE WITH CANADIAN GAAP
    Basic                                                                        $ 1.76      $ 1.56      $ 1.30
===================================================================================================================
    Diluted                                                                      $ 1.76      $ 1.55      $ 1.30
===================================================================================================================
Dividends per common share                                                       $ 1.08      $ 1.00      $ 0.90
===================================================================================================================
</TABLE>

<PAGE>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  85


RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)                                         2003      2002      2001
-----------------------------------------------------------------------------------------------------------------
<S>                                                                                  <C>       <C>       <C>
Net income from continuing operations in accordance with Canadian GAAP                801       747       686
U.S. GAAP adjustments
    Unrealized (loss)/gain on foreign exchange and interest rate derivatives (4)       (9)       30       (14)
    Tax impact of (loss)/gain on foreign exchange and interest rate derivatives         3       (12)        6
    Unrealized gain/(loss) on energy trading contracts (2)                             28       (21)      (17)
    Tax impact of unrealized gain/(loss) on energy trading contracts                  (10)        8         6
    Equity loss (3)                                                                   (18)       --        --
    Tax impact of equity loss                                                           6        --        --
    Income taxes from substantively enacted tax rates (8)                              --        --        28
-----------------------------------------------------------------------------------------------------------------
Income from continuing operations in accordance with U.S. GAAP                        801       752       695
=================================================================================================================
</TABLE>

CONDENSED BALANCE SHEET IN ACCORDANCE WITH U.S. GAAP (1)

<TABLE>
<CAPTION>
December 31 (millions of dollars)              2003       2002
------------------------------------------------------------------
<S>                                          <C>        <C>
Current assets                                1,020      1,079
Long-term energy trading assets (2)              --        218
Long-term investments (3) (9)                 1,760      1,683
Plant, property and equipment (10)           15,798     14,992
Regulatory asset (11)                         2,721      2,578
Other assets (4)                              1,192        884
------------------------------------------------------------------
                                             22,491     21,434
==================================================================
Current liabilities (12)                      2,073      2,006
Long-term energy trading liabilities (2)         --         41
Deferred amounts (2) (4) (9) (10)               741        789
Long-term debt (4)                            9,494      8,963
Deferred income taxes (11)                    3,039      2,692
Preferred securities (13)                       694        694
Trust originated preferred securities            --        218
Non-controlling interests                       471        389
Shareholders' equity                          5,979      5,642
------------------------------------------------------------------
                                             22,491     21,434
==================================================================
</TABLE>


STATEMENT OF OTHER COMPREHENSIVE INCOME IN ACCORDANCE WITH U.S. GAAP

<TABLE>
<CAPTION>
                                                                                       Minimum
                                                                   Cumulative          Pension          Cash Flow
                                                                  Translation        Liability             Hedges
(millions of dollars)                                                 Account     (SFAS No. 87)     (SFAS No. 133)       Total
----------------------------------------------------------------------------------------------------------------------------------
<S>                                                               <C>             <C>               <C>                  <C>
Balance at January 1, 2001                                                 13               --                 --           13
Additional minimum liability for employee future
   benefits, net of tax of $30 (7)                                         --              (56)                --          (56)
Unrealized loss on derivatives, net of tax of $2 (4)                       --               --                 (5)          (5)
Cumulative effect of the application of accounting
   changes, net of tax of $3 (4)                                           --               --                 (4)          (4)
----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 2001                                               13              (56)                (9)         (52)
Additional minimum liability for employee future
   benefits, net of tax of $22 (7)                                         --              (40)                --          (40)
Unrealized loss on derivatives, net of tax of $(1) (4)                     --               --                 (4)          (4)
Foreign currency translation adjustment, net of tax of nil (6)              1               --                 --            1
Balance at December 31, 2002                                               14              (96)               (13)         (95)
Additional minimum liability for employee future
   benefits, net of tax of $1 (7)                                          --               (2)                --           (2)
Unrealized gain on derivatives, net of tax of nil (4)                      --               --                  8            8
Foreign currency translation adjustment, net of tax of $(64) (6)          (54)              --                 --          (54)
----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER 31, 2003                                              (40)             (98)                (5)        (143)
==================================================================================================================================
</TABLE>

<Page>

86  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(1)  In accordance with U.S. GAAP, the Condensed Statement of Consolidated
     Income and Condensed Balance Sheet are prepared using the equity method of
     accounting for joint ventures. Excluding the impact of other U.S. GAAP
     adjustments, the use of the proportionate consolidation method of
     accounting for joint ventures, as required under Canadian GAAP, results in
     the same net income and Shareholders' Equity.

(2)  In 2002, for U.S. GAAP purposes, TransCanada adopted the transitional
     provisions of FASB Emerging Issues Task Force (EITF) 02-3, "Accounting for
     Contracts Involved in Energy Trading and Risk Management Activities"
     whereby the Company was netting all revenues and expenses related to
     derivative energy trading contracts. The accounting change was applied
     retroactively with reclassification of prior periods. Prior to adoption of
     EITF 02-3, energy trading contracts were measured at fair value determined
     as at the balance sheet date. Effective January 1, 2003, the Company fully
     adopted EITF 02-3. This accounting change was effected through a cumulative
     adjustment of $(13) million, after tax, in the current year's income with
     no restatement of prior periods. Substantially all of the energy trading
     contracts are accounted for as hedges under Canadian GAAP. Subsequent to
     October 1, 2003, the energy trading contracts that qualified as hedges were
     accounted for as hedges under the provisions of Statement of Financial
     Accounting Standards (SFAS) No. 133. All gains or losses on the contracts
     that did not qualify as hedges, and the amounts of any ineffectiveness on
     the hedging contracts, are included in income each period. Substantially
     all of the amounts recorded in 2003 as differences between U.S. and
     Canadian GAAP relate to gains and losses on contracts that were not
     accounted for as hedges.

(3)  (a) Under Canadian GAAP, pre-operating costs incurred during the
     commissioning phase of a new project are deferred until commercial
     production levels are achieved. After such time, those costs are amortized
     over the estimated life of the project. Under U.S. GAAP, such costs are
     expensed as incurred. Certain start-up costs incurred by Bruce Power are
     required to be expensed under U.S. GAAP.

     (b) Under both Canadian GAAP and U.S. GAAP, interest is capitalized on
     expenditures relating to construction of development projects actively
     being prepared for their intended use. In Bruce Power, under U.S. GAAP, the
     carrying value of development projects against which interest is
     capitalized is lower due to the expensing of pre-operating costs.

(4)  In 2001, the Company adopted the provisions of SFAS No. 133 "Accounting for
     Derivatives and Hedging Activities". SFAS No. 133 requires that all
     derivatives be recognized as assets and liabilities on the balance sheet
     and measured at fair value.

     For derivatives designated as fair value hedges, changes in the fair value
     are recognized in earnings together with an equal or lesser amount of
     changes in the fair value of the hedged item attributable to the hedged
     risk. For derivatives designated as cash flow hedges, changes in the fair
     value of the derivative that are effective in offsetting the hedged risk
     are recognized in other comprehensive income until the hedged item is
     recognized in earnings. Any ineffective portion of the change in fair value
     is recognized in earnings each period.

     On initial adoption of SFAS No. 133 on January 1, 2001, additional assets
     of $93 million and liabilities of $99 million were recorded for U.S. GAAP
     purposes to reflect the fair value of derivatives designated as interest
     rate hedges and the corresponding change in the fair value of items
     designated as hedges. A charge of $2 million, after tax, relating to the
     fair value of hedges was recognized in income and $4 million, after tax,
     relating to the fair value of derivatives designated as cash flow hedges
     was recognized in other comprehensive income as the cumulative effect of
     application of SFAS No. 133.

     During 2003, net gains of $47 million (2002 - $38 million; 2001 -
     $36 million) from the hedges of changes in the fair value of long-term
     debt, and net losses of $53 million (2002 - $20 million; 2001 -
     $44 million) in the fair value of the hedged item were included in
     earnings as an adjustment to interest expense and foreign exchange losses.
     No amounts of the derivatives' gains or losses were excluded from the
     assessment of hedge effectiveness in fair value hedging relationships.

     No amounts were included in income in 2003, 2002 and 2001 with respect to
     ineffectiveness of cash flow hedges. For amounts included in other
     comprehensive income at December 31, 2003, $9 million (2002 - $(5) million;
     2001 - $(3) million) relates to the hedge of interest rate risk, $5 million
     (2002 - $1 million; 2001 - $(2) million) relates to the hedge of foreign
     exchange rate risk, and $(6) million (2002 - nil; 2001 - nil) relates to
     the hedge of energy price risk. Of these amounts, $(5) million is expected
     to be recorded in earnings during 2004.

     At December 31, 2003, additional assets of $107 million (2002 -
     $198 million) and additional liabilities of $110 million (2002 -
     $203 million) were recorded for U.S. GAAP purposes to reflect the fair
     value of derivatives designated as hedges and the corresponding change in
     the fair value of items designated as hedges.

(5)  Other expenses include an allowance for funds used during construction of
     $2 million for the year ended December 31, 2003 (2002 - $4 million; 2001 -
     $5 million).

(6)  Under U.S. GAAP, changes in the foreign currency translation adjustment
     account must be recorded as a component of comprehensive income.

(7)  Under U.S. GAAP, a net loss recognized pursuant to SFAS No. 87 "Employers'
     Accounting for Pensions" as an additional pension liability not yet
     recognized as net period pension cost, must be recorded as a component of
     comprehensive income. The net amount recognized at December 31 is as
     follows.

<TABLE>
<CAPTION>
     December 31 (millions of dollars)                 2003        2002
     ----------------------------------------------------------------------
     <S>                                            <C>          <C>
     Prepaid benefit cost                           $   143      $   70
     Accrued benefit cost                                --          --
     Intangible assets                                  (41)        (44)
     Accumulated other comprehensive income            (151)       (148)
     ----------------------------------------------------------------------
     Net amount recognized                          $   (49)     $ (122)
     ======================================================================
</TABLE>

The accumulated benefit obligation for the Company's DB Plans was $819 million
at December 31, 2003 (2002 - $738 million).

<Page>

                                  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS  87

(8)  Under U.S. GAAP, only enacted rates can be used in measuring deferred tax
     assets and liabilities; use of substantively enacted rates is not
     permitted. The February 2000 and October 2000 Federal budgets would not be
     considered enacted until the proposals were completely enacted into law in
     June 2001 and, accordingly, the related tax recoveries were recognized in
     2001.

(9)  Effective January 1, 2003, the Company adopted the provisions of Financial
     Interpretation (FIN) 45 that require the recognition of a liability for the
     fair value of certain guarantees that require payments contingent on
     specified types of future events. The measurement standards of FIN 45 are
     applicable to guarantees entered into after January 1, 2003. For U.S. GAAP,
     the Company has recorded the fair value of the guarantees ($4 million)
     arising on the acquisition of the interest in Bruce Power as a liability
     and an increase in the cost of the investment.

(10) Effective January 1, 2003, the Company adopted the provisions of SFAS No.
     143 "Accounting for Asset Retirement Obligations", which addresses
     financial accounting and reporting for obligations associated with asset
     retirement costs. SFAS No. 143 requires that the fair value of a liability
     for an asset retirement obligation be recognized in the period in which it
     is incurred if a reasonable estimate of fair value can be made. The fair
     value is added to the carrying amount of the associated asset. The
     liability is accreted at the end of each period through charges to
     operating expenses.

     The plant, property and equipment of the regulated natural gas transmission
     operations consist primarily of underground pipelines and above ground
     compression equipment and other facilities. No amount has been recorded for
     asset retirement obligations relating to these assets as it is not possible
     to make a reasonable estimate of the fair value of the liability due to the
     indeterminate timing and scope of the asset retirements. Management
     believes that all retirement costs associated with the regulated pipelines
     will be recovered through tolls in future periods.

     The plant, property and equipment in the power business consists primarily
     of power plants in Canada and the United States. The estimated fair value
     of the liability for the power plants and associated assets as at January
     1, 2003 was $6 million. The asset retirement cost, net of accumulated
     depreciation that would have been recorded if the cost had been recorded in
     the period in which it arose, is recorded as an additional cost of the
     assets as at January 1, 2003. The estimated fair value of the liability as
     at December 31, 2003 was $7 million. The cumulative effect of the
     application of SFAS No. 143 on income with respect to the years ended
     December 31, 2001 and 2002 would have been less than $1 million. The
     Company has no legal liability for asset retirement obligations with
     respect to its investment in Bruce Power and the Sundance A and B power
     purchase arrangements.

(11) Under U.S. GAAP, the Company is required to record a deferred income tax
     liability for its cost-of-service regulated businesses. As these deferred
     income taxes are recoverable through future revenues, a corresponding
     regulatory asset is recorded for U.S. GAAP purposes.

(12) Current liabilities at December 31, 2003 include dividends payable of $136
     million (2002 - $125 million) and current taxes payable of $271 million
     (2002 - $150 million).

(13) The fair value of the preferred securities at December 31, 2003 was $612
     million (2002 - $743 million). The Company made preferred securities
     charges payments of $57 million for the year ended December 31, 2003 (2002
     - $58 million; 2001 - $77 million).

(14) The Company's Statement of Consolidated Cash Flows under U.S. GAAP would be
     identical to that under Canadian GAAP except that the preferred securities
     charges would be classified with funds generated from continuing
     operations.

INCOME TAXES  The tax effects of differences between the accounting value and
the tax value of assets and liabilities are as follows.

<TABLE>
<CAPTION>
December 31 (millions of dollars)                                        2003      2002
-------------------------------------------------------------------------------------------
<S>                                                                     <C>       <C>
DEFERRED TAX LIABILITIES
Difference in accounting and tax bases of plant, equipment and PPAs     1,813     1,703
Taxes on future revenue requirement                                       962       876
Investments in subsidiaries and partnerships                              373       379
Other                                                                      87        22
-------------------------------------------------------------------------------------------
                                                                        3,235     2,980
-------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS
Net operating and capital loss carry forwards                              28        91
Deferred amounts                                                           79       104
Other                                                                     113       126
-------------------------------------------------------------------------------------------
                                                                          220       321
Less: Valuation allowance                                                  24        33
-------------------------------------------------------------------------------------------
                                                                          196       288
-------------------------------------------------------------------------------------------
Net deferred tax liabilities                                            3,039     2,692
===========================================================================================
</TABLE>

<Page>

88  NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

STOCK-BASED COMPENSATION  Under the transition rules provided by SFAS No. 148
"Accounting for Stock-Based Compensation -Transition and Disclosure - an
amendment of FASB Statement No. 123", the Company is expensing stock options
granted in 2003 and 2002. The use of the fair value method of SFAS No. 123
"Accounting for Stock-Based Compensation" for previously issued options would
have resulted in net income under U.S. GAAP of $836 million in 2003 (2002 - $749
million; 2001 - $621 million) and net income per share (basic) of $1.74 in 2003
(2002 - $1.56 per share; 2001 - $1.30 per share).

OTHER  In 2003, the FASB issued FIN 46 (Revised) "Consolidation of Variable
Interest Entities" that requires the consolidation of certain entities that are
controlled through financial interests that indicate control (referred to as
"variable interests"). Variable interests are the rights or obligations that
convey economic gains or losses from changes in the values of an entity's assets
or liabilities. The holder of the majority of an entity's variable interests
will be required to consolidate the variable interest entity. Adopting the
provisions of FIN 46 (Revised) has had no impact on the U.S. GAAP financial
statements of the Company.

In May 2003, the FASB issued SFAS No. 150 "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity". This Statement
establishes standards for how an issuer classifies and measures in its statement
of financial position certain financial instruments with characteristics of both
liabilities and equity. It requires that an issuer classify a financial
instrument that is within its scope as a liability (or an asset in some
circumstances) because that financial instrument embodies an obligation of the
issuer. Many of those instruments were previously classified as equity. Adopting
the provisions of SFAS No. 150 has had no impact on the U.S. GAAP financial
statements of the Company. Effective January 1, 2005, in accordance with
Canadian GAAP, certain instruments that are currently classified as equity will
be classified as liabilities, under new Canadian accounting standards.

SUMMARIZED FINANCIAL INFORMATION OF LONG-TERM INVESTMENTS (15)

<TABLE>
<CAPTION>
Year ended December 31 (millions of dollars)                     2003        2002        2001
-------------------------------------------------------------------------------------------------
<S>                                                             <C>          <C>         <C>
INCOME
Revenues                                                        1,063         798         695
Other costs and expenses                                         (528)       (273)       (191)
Depreciation                                                     (141)       (146)       (143)
Financial charges and other                                       (53)       (112)       (136)
-------------------------------------------------------------------------------------------------
Proportionate share of income before income
   taxes of long-term investments                                 341         267         225
=================================================================================================
</TABLE>

<TABLE>
<CAPTION>
December 31 (millions of dollars)                                2003        2002
-------------------------------------------------------------------------------------
<S>                                                            <C>         <C>
BALANCE SHEET
Current assets                                                    385         246
Plant, property and equipment                                   2,944       3,251
Other assets (net)                                                 --         112
Current liabilities                                              (204)       (216)
Deferred amounts (net)                                           (286)         --
Non-recourse debt                                              (1,060)     (1,646)
Deferred income taxes                                             (19)        (64)
-------------------------------------------------------------------------------------
Proportionate share of net assets of long-term investments      1,760       1,683
=====================================================================================
</TABLE>

(15) This includes those investments that are accounted for by the equity method
     under U.S. GAAP (including those that are accounted for by the
     proportionate consolidation method under Canadian GAAP).
<Page>

                                                                              89


SUPPLEMENTARY INFORMATION

QUARTERLY AND ANNUAL SHARE TRADING INFORMATION

<TABLE>
<CAPTION>
(Stock trading symbol TRP)
TORONTO STOCK EXCHANGE ($Cdn)          First      Second       Third      Fourth      Annual
------------------------------------------------------------------------------------------------
<S>                                    <C>        <C>          <C>        <C>         <C>
2003
High                                   23.00       25.67       25.80       28.49       28.49
Low                                    20.77       21.60       23.60       24.76       20.77
Close                                  21.55       23.75       25.07       27.88       27.88
Volume (millions of shares)             69.6        76.9        64.2        67.2       277.9
------------------------------------------------------------------------------------------------
2002
High                                   22.80       23.91       23.63       23.47       23.91
Low                                    19.05       21.50       20.51       22.03       19.05
Close                                  21.60       23.00       22.60       22.92       22.92
Volume (millions of shares)             68.8        60.0        74.6        77.2       280.6
------------------------------------------------------------------------------------------------

NEW YORK STOCK EXCHANGE ($US)
------------------------------------------------------------------------------------------------
2003
High                                   15.12       19.10       18.82       21.88       21.88
Low                                    14.16       14.62       17.45       18.47       14.16
Close                                  14.74       17.57       18.58       21.51       21.51
Volume (millions of shares)              6.5         5.3         2.5         6.9        21.2
------------------------------------------------------------------------------------------------
2002
High                                   14.39       15.56       15.53       15.08       15.56
Low                                    11.89       13.49       12.91       13.90       11.89
Close                                  13.60       15.32       14.21       14.51       14.51
Volume (millions of shares)              3.0         2.6         4.5         6.2        16.3
------------------------------------------------------------------------------------------------
</TABLE>
<Page>

90  SUPPLEMENTARY INFORMATION


FOUR-YEAR FINANCIAL HIGHLIGHTS

<TABLE>
<CAPTION>
(millions of dollars except where indicated)                  2003           2002           2001           2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>            <C>
INCOME STATEMENT
Revenues                                                     5,357          5,214          5,275          4,384
Net income from continuing operations                          801            747            686            628
Net income/(loss) by segment
     Gas Transmission                                          622            653            585            623
     Power                                                     220            146            168             85
     Corporate                                                 (41)           (52)           (67)           (80)
   Continuing operations                                       801            747            686            628
   Discontinued operations                                      50             --            (67)            61
Net income                                                     851            747            619            689

CASH FLOW STATEMENT
Funds generated from continuing operations                   1,810          1,827          1,624          1,495
Capital expenditures and acquisitions
     Continuing operations                                     961            814          1,025            773
     Discontinued operations                                    --             13             52            362
     Total                                                     961            827          1,077          1,135
Dividends and preferred securities charges                     588            546            517            536

BALANCE SHEET
ASSETS
Plant, property and equipment
     Gas Transmission                                       16,098         16,098         16,509         16,894
     Power                                                   1,303          1,334          1,110            771
     Corporate                                                  50             64             66            111
Total assets
     Continuing operations                                  20,533         19,827         19,629         19,761
     Discontinued operations                                    11            139            276          5,007

CAPITALIZATION
Long-term debt                                               9,465          8,815          9,347          9,928
Non-recourse debt of joint ventures                            761          1,222          1,295          1,296
Preferred securities                                            22            238            237            243
Non-controlling interest - Preferred securities
     of subsidiary                                             672            674            675            969
Non-controlling interest - Preferred shares                    389            389            389            389
Common shareholders' equity                                  6,091          5,747          5,426          5,211

U.S. GAAP INFORMATION
Net income/(loss)
     Continuing operations before extraordinary items          788            752            693            607
     Discontinued operations                                    50             --            (67)            61
     Extraordinary item                                         --             --             --             13
     Net income                                                838            752            626            681
Net income/(loss) per share
     Continuing operations before extraordinary items     $   1.64       $   1.57       $   1.46       $   1.27
     Discontinued operations                              $   0.10       $     --       $  (0.14)      $   0.13
     Extraordinary item                                   $     --       $     --       $     --       $   0.03
     Net income per share - Basic                         $   1.74       $   1.57       $   1.32       $   1.43
     Net income per share - Diluted                       $   1.73       $   1.56       $   1.32       $   1.43
Common shareholders' equity                                  5,979          5,642          5,360          5,163
-------------------------------------------------------------------------------------------------------------------
</TABLE>

<Page>

                                                  SUPPLEMENTARY INFORMATION   91


<TABLE>
<CAPTION>
                                                              2003           2002           2001           2000
-------------------------------------------------------------------------------------------------------------------
<S>                                                       <C>            <C>            <C>            <C>
PER COMMON SHARE DATA
Net income - Basic
     Continuing operations                                $   1.66       $   1.56       $   1.44       $   1.32
     Discontinued operations                                  0.10             --          (0.14)          0.13
-------------------------------------------------------------------------------------------------------------------
                                                          $   1.76       $   1.56       $   1.30       $   1.45
-------------------------------------------------------------------------------------------------------------------
Net income - Diluted                                      $   1.76       $   1.55       $   1.30       $   1.45
-------------------------------------------------------------------------------------------------------------------
Dividends declared                                        $   1.08       $   1.00       $   0.90       $   0.80
Book Value (1)(6)                                         $  12.61       $  11.99       $  11.38       $  10.97
Market Price
   Toronto Stock Exchange ($Cdn)
     High                                                    28.49          23.91          21.13          17.25
     Low                                                     20.77          19.05          14.85           9.80
     Close                                                   27.88          22.92          19.87          17.20
     Volume (millions of shares)                             277.9          280.6          288.2          400.7
   New York Stock Exchange ($US)
     High                                                    21.88          15.56          13.41          11.50
     Low                                                     14.16          11.89           9.88           6.75
     Close                                                   21.51          14.51          12.51          11.50
     Volume (millions of shares)                              21.2           16.3           16.8           21.2
Shares outstanding (millions)
     Average for the year                                    481.5          478.3          475.8          474.6
     End of year                                             483.2          479.5          476.6          474.9
Registered common shareholders (1)                          33,133         34,902         36,350         30,758

FINANCIAL RATIOS
Return on average common shareholders' equity (2)             14.4%          13.4%          11.6%          13.6%
Dividend yield (3)                                             3.9%           4.4%           4.5%           4.7%
Price/earnings multiple (4)(5)                                15.8           14.7           15.3           11.9
Price/book multiple (4)(6)                                     2.2            1.9            1.7            1.6
Debt to debt plus shareholders' equity (7)                      62%            62%            65%            67%
Total shareholder return (8)                                    27%            21%            21%            48%
Earnings to fixed charges (9)                                  2.3            2.3            2.1            1.9
Earnings to fixed charges (per U.S. GAAP)*                     2.1            2.1            2.0            1.9
-------------------------------------------------------------------------------------------------------------------
</TABLE>

(1)  As at December 31.

(2)  The ratio of return on average common shareholders' equity is determined by
     dividing net income by average common shareholders' equity (i.e. opening
     plus closing shareholders` equity divided by 2) for each year.

(3)  The ratio of dividend yield is determined by dividing dividends declared
     during the year by price per share as at December 31.

(4)  Price per share refers to market price per share as reported on the Toronto
     Stock Exchange as at December 31.

(5)  The price/earnings multiple is determined by dividing price per share by
     the basic net income per share.

(6)  The price/book multiple is determined by dividing price per share by book
     value per share as calculated by dividing shareholders' equity by the
     number of shares outstanding as at December 31.

(7)  Debt includes total long-term debt plus preferred securities as at December
     31 and excludes non-recourse debt of joint ventures. Shareholders' equity
     in this ratio is as at December 31.

(8)  Total shareholder return is the sum of the change in price per share plus
     the dividends received plus the impact of dividend re-investment in a
     calendar year, expressed as a percentage of the value of shares at the end
     of the previous year.

(9)  The ratio of earnings to fixed charges is determined by dividing the income
     from continuing operations before financial charges and income taxes,
     excluding undistributed income from equity investees by the financial
     charges incurred by the company (including capitalized interest).

*    The ratio is determined in the manner described in (9) above, but utilizing
     similar information determined in accordance with U.S. GAAP. Differences
     are described in Note 18 "U.S. GAAP", to the Consolidated Financial
     Statements.
<Page>

92


[LOGO] VISIT US ON OUR WEB SITE  To access TransCanada's corporate and
financial information, including quarterly reports, news releases, real-time
conference call Web casts and investor presentations, visit us at
www.transcanada.com




INVESTOR INFORMATION

STOCK EXCHANGES, SECURITIES AND SYMBOLS

TRANSCANADA CORPORATION
Common shares are listed on the Toronto and New York stock exchanges under
the symbol: TRP

TRANSCANADA PIPELINES LIMITED (TCPL)*
Preferred shares are listed on the Toronto Stock Exchange under the following
symbols:

- Cumulative redeemable first preferred Series U: TCA.PR.X and
Series Y: TCA.PR.Y

8.25% Preferred Securities are listed on the New York Stock Exchange under
the following symbol: TCAPr

16.50% First Mortgage Pipe Line Bonds due 2007 are listed on the London Stock
Exchange


NOVA GAS TRANSMISSION LTD. (NGTL)*
7.875% Debentures are listed on the New York Stock Exchange under the symbol:
NVA 23

* TransCanada PipeLines Limited (TCPL) and Nova Gas Transmission Ltd. (NGTL)
are wholly-owned subsidiaries of TransCanada Corporation.

ANNUAL MEETING  The annual meeting of shareholders is scheduled for April 23,
2004 at 10:30 a.m. (Mountain Daylight Time) at the Hyatt Regency Hotel,
Calgary, Alberta.

DIVIDEND PAYMENT DATES  Scheduled common share dividend payment dates in 2004
are January 30, April 30, July 30 and October 29.

DIVIDEND REINVESTMENT AND SHARE PURCHASE PLAN  TransCanada's dividend
reinvestment and share purchase plan allows common shareholders of
TransCanada and preferred shareholders of TCPL to purchase additional common
shares by reinvesting their cash dividends without incurring brokerage or
administrative fees. Participants in the plan may also buy additional common
shares, of up to $10,000 (US$7,000) per quarter. Please contact our Plan
agent, Computershare Trust Company of Canada, for more information on the
Plan or visit us at www.transcanada.com.

TRANSFER AGENTS, REGISTRARS AND TRUSTEE

TRANSCANADA CORPORATION COMMON SHARES  Computershare Trust Company of Canada
(Montreal, Toronto, Winnipeg, Calgary and Vancouver) and Computershare Trust
Company (New York)

TCPL PREFERRED SHARES  Computershare Trust Company of Canada (Montreal,
Toronto, Winnipeg, Calgary and Vancouver)

TCPL PREFERRED SECURITIES  The Bank of New York (New York)

TCPL FIRST MORTGAGE PIPE LINE BONDS  CIBC Mellon Trust Company, as agent for
National Trust Company (Toronto). Co-Registrar and Paying Agent U.K. Series,
16.50%: Computershare Services plc (London, England)

<Page>

                                                       INVESTOR INFORMATION   93

TCPL DEBENTURES  Canadian series: CIBC Mellon Trust Company (Halifax,
Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver)

11.10% series N     10.50% series O     10.50% series P     10.625% series Q

11.85% series R     11.90% series S     11.80% series U       9.80% series V
 9.45% series W

U.S. series: The Bank of New York (New York) 9.875%, 8.625% and 8.50%

TCPL SUBORDINATED DEBENTURES  The Bank of Nova Scotia Trust Company of New York
(New York) U.S. Series 9.125%

TCPL CANADIAN MEDIUM TERM NOTES  CIBC Mellon Trust Company (Halifax, Montreal,
Toronto, Winnipeg, Regina, Calgary and Vancouver)

TCPL U.S. MEDIUM TERM NOTES (UNSUBORDINATED NOTES) AND SENIOR NOTES  The Bank
of New York (New York)

NGTL DEBENTURES
Canadian series: CIBC Mellon Trust Company (Halifax, Montreal, Toronto,
Winnipeg, Regina, Calgary and Vancouver)

11.95% series 13    11.70% series 15    11.20% series 18    12.625% series 19
12.20% series 20    12.20% series 21     9.90% series 23

U.S. Debentures: U.S. Bank Trust National Association Series (New York) 8.50%
and 7.875%

U.S. Notes: U.S. Bank Trust National Association Series (New York) 8.50%

NGTL CANADIAN MEDIUM TERM NOTES  CIBC Mellon Trust Company (Halifax,
Montreal, Toronto, Winnipeg, Regina, Calgary and Vancouver)

NGTL U.S. MEDIUM TERM NOTES  U.S. Bank Trust National Association (New York)

REGULATORY FILINGS

ANNUAL INFORMATION FORM  TransCanada's 2003 Renewal Annual Information Form,
as filed with Canadian securities commissions and as filed under Form 40-F
with the U.S. Securities and Exchange Commission, is available on our Web
site at www.transcanada.com. A printed copy may be obtained from:

Corporate Secretary, TransCanada Corporation, P.O. Box 1000, Station M,
Calgary, Alberta, Canada T2P 4K5

SHAREHOLDER ASSISTANCE

If you are a registered shareholder and have questions regarding your
account, please contact our transfer agent in writing, by phone, fax or
e-mail at:

Computershare Trust Company of Canada, 100 University Avenue, 9th floor,
Toronto, Ontario, Canada M5J 2Y1
Toll-free: 1 (800) 340-5024     Fax: 1 (888) 453-0330 (North America)
Telephone: 1 (514) 982-7959     Fax: 1 (416) 263-9394 (outside North America)
E-mail: transcanada@computershare.com

If you hold your shares in a brokerage account (beneficial shareholder),
questions should be directed to your broker on all administrative matters.

If you would like to receive quarterly reports, please contact Computershare
or visit us at our Web site.

ELECTRONIC PROXY VOTING AND DELIVERY OF DOCUMENTS  We will continue the
electronic proxy solicitation and voting and electronic delivery of documents
program (annual report, management information circular, notice of meeting
and view-only proxy form) for registered and beneficial shareholders in 2004.

This will provide increased convenience to shareholders, benefits to the
environment and reduced mailing and printing costs for the corporation. We
will continue to provide printed copies of these documents for those
shareholders who prefer this format.

TRANSCANADA IN THE COMMUNITY  Copies of the Annual Report on Environment,
Health and Safety, and Community and the Submission to the Climate Change
Voluntary Challenge and Registry are available at www.transcanada.com. If you
would like to receive a copy of these reports by mail, please contact:

COMMUNICATIONS AND GOVERNMENT RELATIONS P.O. Box 1000, Station M, Calgary,
Alberta T2P 4K5, 1 (403) 920-2000

<Page>

94


[LOGO]  Si vous desirez vous procurer un exemplaire de ce rapport en
francais, veuillez consulter notre site Web ou vous adresser par ecrit a
TransCanada Corporation, bureau du secretaire.





BOARD OF DIRECTORS

RICHARD F. HASKAYNE, O.C., F.C.A.*        WENDY K. DOBSON (2)(4)
Chairman                                  Professor, Rotman School of
TransCanada Corporation                   Management and Director,
Calgary, Alberta                          Institute for International
                                          Business University of Toronto
HAROLD N. KVISLE, P. ENG.                 Uxbridge, Ontario
President and CEO
TransCanada Corporation                   THE HON. PAULE GAUTHIER,
Calgary, Alberta                          P.C., O.C., O.Q., Q.C. (1)(3)
                                          Senior Partner
DOUGLAS D. BALDWIN, P. ENG. (2)(3)        Desjardins Ducharme Stein Monast
Corporate Director                        Quebec, Quebec
Calgary, Alberta
                                          KERRY L. HAWKINS (1)(4)
                                          President
                                          Cargill Limited
                                          Winnipeg, Manitoba

S. BARRY JACKSON (1)(3)                   HARRY G. SCHAEFER, F.C.A. (1)(2)
Chairman                                  President
Resolute Energy Inc.                      Schaefer & Associates Ltd.
Deer Creek Energy Limited                 and Vice-Chairman
Calgary, Alberta                          TransCanada Corporation
                                          Calgary, Alberta
DAVID P. O'BRIEN (2)(4)
Chairman                                  W. THOMAS STEPHENS (3)(4)
EnCana Corporation                        Corporate Director
Calgary, Alberta                          Greenwood Village, Colorado

JAMES R. PAUL (1)(2)                      JOSEPH D. THOMPSON, P. ENG. (3)(4)
Chairman                                  Chairman
James and Associates                      PCL Construction Group Inc.
Kingwood, Texas                           Edmonton, Alberta

  * Non-voting member of all committees of the Board
(1) Member, Audit Committee
(2) Member, Governance Committee
(3) Member, Health, Safety and Environment Committee
(4) Member, Human Resources Committee


CORPORATE GOVERNANCE  Please refer to TransCanada's Notice of 2004 Annual and
Special Meeting of Common Shareholders and Management Proxy Circular for the
company's report on corporate governance. TransCanada's Corporate Governance
Guidelines, Committee charters, and codes of business conduct and ethics are
available on our Web site at www.transcanada.com. Also available on our Web
site is a summary of the significant ways in which TransCanada's corporate
governance practices differ from those required to be followed by U.S.
domestic companies under the New York Stock Exchange's listing standards.

Additional information relating to the company is filed with securities
regulators in Canada on SEDAR at www.sedar.com and in the United States on
EDGAR at www.sec.gov. The documents referred to in this Annual Report may be
obtained free of charge by contacting TransCanada's Corporate Secretary at
P.O. Box 1000, Station M, Calgary, Alberta, Canada T2P 4K5, telephone 1 (403)
920-2000.

ETHICS HELP-LINE  The Audit Committee of the Board of Directors has
established an anonymous and confidential toll-free telephone number for
employees, contractors and others to call with respect to accounting
irregularities and ethical violations. The Ethics Help-Line number is 1 (888)
920-2042.

Please recycle  [LOGO]  Printed in Canada

Designed and produced by smith + associates   www.smithandassoc.com

<Page>

[LOGO]  TRANSCANADA CORPORATION

TransCanada Tower, 450 - First Street SW, Calgary, Alberta T2P 5H1
1 (403) 920-2000

TransCanada welcomes questions from shareholders and investors.
Please contact:

DAVID MONETA, Director, Investor Relations at 1 (800) 361-6522
(Canada and U.S. Mainland)

Visit TransCanada's Web site at WWW.TRANSCANADA.COM



EXECUTIVE OFFICERS

<Table>
<S>                      <C>                            <C>                           <C>

     [PHOTO]                    [PHOTO]                        [PHOTO]                       [PHOTO]


HAROLD N. KVISLE           ALBRECHT W.A. BELLSTEDT, Q.C.  RUSSELL K. GIRLING            DENNIS J. MCCONAGHY
President and              Executive Vice-President,      Executive Vice-President,     Executive Vice-President,
Chief Executive Officer    Law and General Counsel        Corporate Development         Gas Development
                                                          and Chief Financial Officer


     [PHOTO]                    [PHOTO]                        [PHOTO]                       [PHOTO]

ALEXANDER J. POURBAIX      SARAH E. RAISS                 RONALD J. TURNER              DONALD M. WISHART
Executive Vice-President,  Executive Vice-President,      Executive Vice-President,     Executive Vice-President,
Power                      Corporate Services             Gas Transmission              Operations & Engineering
</Table>


METRIC CONVERSION TABLE

<Table>
<Caption>
Metric                               Imperial                              Factor
---------------------------------------------------------------------------------
<S>             <C>                            <C>
kilometres                              miles                                0.62
millimetres                            inches                                0.04
gigajoules      million British thermal units                                0.95
cubic metres*                      cubic feet                                35.3
degrees Celsius            degrees Fahrenheit           Multiply by 1.8, then add
                                               32 degrees. To convert to Celsius,
                                                 subtract 32 degrees, then divide
                                                                           by 1.8
---------------------------------------------------------------------------------
</Table>

* The conversion is based on natural gas at a base pressure of 101.325
kilopascals and a base temperature of 15 degrees Celsius.

Back cover photo: TransCanada's Bear Creek cogeneration power plant near
Grande Prairie, Alberta. The Bear Creek plant was placed in-service in
2003.

<Page>

[LOGO] GAS TRANSMISSION  Our 39,000 kilometre (24,200 mile) pipeline system
links the rich natural gas resources of the Western Canada Sedimentary Basin
- one of North America's largest, most cost-competitive sources of natural
gas - to markets across Canada and the United States.  POWER  We have nearly
4,700 megawatts of power generation in operation or under construction -
enough to meet the needs of about 4.7 million average households.  PEOPLE
Our 2,300 employees give us a strong competitive advantage because of their
industry-leading expertise in pipeline and power operations and project
management, their depth of market and industry knowledge and their financial
acumen.  Our STRATEGY has five focused elements that are helping us achieve
solid performance, creating value for our shareholders today and in the
future.

[GRAPHIC]

[LOGO] 2003                                      [LOGO] TRANSCANADA
       CANADA'S MOST                                    IN BUSINESS TO DELIVER
       RESPECTED
       CORPORATIONS